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Cash has its place in every client’s financial plan. It’s a rainy-day fund, it’s available instantly, and right now, there are historically attractive rates available (at least in the context of the last 15 years).
However, over the long term, holding too much in cash will reduce the real value of wealth, as it typically tracks below the rate of inflation, and below the performance of investment markets.
So, what could be the optimum solution?
Platform cash is where an individual holds cash on a platform separate to investments, where it can be quickly moved into investments, while still earning the same sort of rates as available in high street bank current accounts.
In a hypothetical situation, a client has come into an inheritance and is looking to invest, but their Financial Planner doesn’t think it’s an optimum time, so cash is held on platform. It’s a large amount that exceeds the £85,000 Financial Services Compensation Scheme (FSCS) amount, but the platform in this example holds cash by spreading it across a panel of different UK banks to reduce the client’s exposure to the risk of any individual bank failing.
A week later, the situation changes and there’s an opportunity to move some of it into the market, and the cash can be seamlessly invested, rather than waiting for money to be moved, forms to be signed and the opportunity is lost.
As part of an advised strategy, the remaining balance could be drip-fed into markets, while all the time accruing interest at the platform’s rate.
IMPORTANT: The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a reliable indicator of future performance.
Cash held by individual clients on platforms is eligible for protection under the FSCS. However, the £85,000 limit includes any cash holdings that a client may have under the same bank/banking licence outside of the platform.
Platform and advisory fees will apply on cash balances. Speak to your financial planner for more details.
This is for information only and does not constitute advice.
