subject: How To Protect Your Cash From Sir Mervyn's Shredder [print this page] Dear Fellow Investor, Dear Fellow Investor,
Long-suffering savers in the UK were dealt a double blow this month. First we had the news that Chairman of the Bank of England, Sir Mervyn King, with the full approval of UK Chancellor George Osborne, had taken it upon himself to print more money to the tune of 75 billion on top of the 200 billion he printed a couple of years ago. Secondly, were told that the rate of inflation (or RPI) has just risen to a scary 5.6%. If youre guessing that there might be some sort of link between these two headlines, you might just be on to something.
The Bank of England tries to play down the money-printing angle (or Quantitative Easing as they would prefer to call it) by saying that the newly printed cash is being used to buy assets from financial institutions. This, of course, begs the question: why cant those financial institutions sell their assets, in this case mostly government and corporate bonds, on the open market to willing buyers like the rest of us have to? The answer, of course, is that there is no market for those assets at anywhere near current market prices. The end result is that the Bank has paid way over the odds for assets of dubious or little value and created freshly minted money to do so that wouldnt otherwise have existed. In my book, this shameful act is still money printing or legalised counterfeiting, plain and simple, no matter what semantics the Bank indulges in to try and confuse us.
Whats more, if reports are to be believed, the Bank aint finished yet: it plans to engage in yet more money-printing over the next few months to the tune of an extra 225 billion. It makes you wonder what the rate of inflation will be by the time Sir Mervyns finally finished his handiwork, if he ever does finish
If youre a saver, of course, the effect of all this counterfeiting has been catastrophic. Because of the Banks low interest rate policy and reckless dilution of the currency, your efforts are being consistently and wilfully undermined. The Bank is still imbued with the damaging notion that spending and consumption is good, and saving is bad and must be discouraged at all costs, with all the corrosive implications that has for society as a whole.
So what can you do to protect the value of your cash from Sir Mervyns turbo-charged paper shredder? Well, if you rely totally on banks and building societies for your returns its going to be an up-hill struggle, because with inflation at over 5% the purchasing power of your cash will have halved in 12 years.
Nevertheless, for most of us, holding at least some of our wealth in paper cash is a necessary evil. So in an attempt to at least partially gum up Sir Mervyns shredder, Ive had a quick scout around the internet to try and find a few of the best deals out there for you at the moment and heres what Ive come up with:
Id advise keeping it tax-free if at all possible by using ISAs (current limit 5340 per year).
For easy access tax-free cash ISAs, the best of the bunch at the moment are:
Northern Rock Online E-ISA (1+) at 3.05%
First Direct Cash E-ISA (1+) at 2.7%
Newcastle Building Society Online Access ISA (1+) also at 2.7%
For tax-free cash ISAs incorporating a bonus, usually for the first year, Ive found the following:
West Bromwich Building Society WeBSave ISA (1000+) at 3.07%
AA Savings Internet Access ISA (500+) at 3.05%
Newcastle Bonus ISA 2 (1+) also at 3.05%
If you want to gamble on interest rates staying low for a while, and I wouldnt do that for more than a year if I were you, here are a few fixed rate tax-free cash ISAs to consider:
One Year Fix
Northern Rock (500) at 3.35%
Chelsea Building Society (100) at 3.3%
Leeds Building Society (1) at 3.25%
If youre prepared to tie your cash up for a bit longer, theres always the new deal from the Post Office which has launched some rather attractive accounts linked to the RPI.
The 3 year inflation linked bond pays out RPI plus 0.25%
The 5 year inflation linked bond pays out RPI plus 1%
The downside of these bonds is that there are penalties to pay if you want to withdraw your money early. Also, do bear in mind that these bonds are provided to the Post Office by the Bank of Ireland and I wouldnt be too sure how reliable a guarantee is from the Bank of Ireland bearing in mind the current turmoil in the Eurozone, especially over a 3 or 5-year period.
So if you spread your cash across a few of these accounts, you should at least be able to slow down the rate your savings depreciate over the years. However, if you want to stop or even reverse the decline, youre going to have to become a speculator, whether you like it or not. Theres simply no other way.
Now believe it or not, despite my interest in the world of investing, Id much rather not have to bother. If the Bank of England would guarantee me a real, above-inflation return on my cash, Id probably be out cycling or indulging in my other hobby of photography at the moment rather than writing this blog because Im not a natural risk-taker.
Historically, high street banks were able to offer savers rates of at least 3% above inflation. So that means that if interest rates were to revert to the norm, we really ought to be earning 8.5% on our savings now to get our real above-inflation return. If Sir Mervyn would only guarantee me a rate like that on my cash and chuck his shredder in the skip, Id close my website down like a shot.
Sadly, I fear Sir Mervyn is unlikely to see the error of his ways any time soon not before savers give up on saving completely and the banking system is totally drained of capital, at any rate.
So that leaves us with speculation, and when it comes to putting my money at risk, I want to choose the lowest risk option out there for the highest possible return. Regular readers of my articles know that Ive put my trust in gold and silver over the last 8 years, and although there have been ups and downs in that period, over the longer term, they havent let me down. In fact, theyve rewarded me handsomely and more than kept up with the increased cost of living.
Since, in my opinion, gold has always been the only real money out there and is in the process of replacing all these government-mandated paper abstractions that were currently forced to use as money, I feel that its time for a change of mindset when it comes to saving. For example, instead of making regular deposits in a building society and watching my real purchasing power dwindle over time (although I still have a short-term cash cushion for emergencies), I prefer to save my wealth for the long-term in the form of gold and silver and make regular deposits in my accounts with secure and cost-effective vaulting services like Bullion Vault or Goldmoney.
That way, I can take advantage of pound-cost averaging and iron out the price volatility. In other words, sometimes the paper price of gold is higher and I buy fewer ounces of gold and silver, and sometimes the paper price of the metals is lower and I get more ounces in return for my paper. The real beauty of this kind of saving, though, is that its completely outside the banking system and totally secure from Sir Mervyn and his out-of-control paper shredder. So if you too would like to pull the plug on Sir Mervyn and protect the long-term value of your savings, why not click here to investigate further?
