Keep cash in preparation for any crises

Philip Salter
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In order to be able to pay for unexpected emergencies, it is vital you hold some savings in the most liquid of assets: cash.

There are even a few easy access accounts with bonuses that can almost keep up with the
current level of 4 per cent CPI inflation. However, it would be a mistake to keep too much of your wealth in cash, when you could be earning more elsewhere.

A useful rule of thumb that most people use in deciding how much to keep in readily accessible cash is the sum of between three and six months’ salary, according to Andrew Hagger of If, for example, you were to lose your job, this would be a crucial cushion before finding new work.

Currently, the best easy access savings accounts include Nationwide’s MySave Online Plus, Northern Rock’s E-Saver Issue 5 and Santander’s E-Saver Issue 3. They give 3.05 per cent (including 1.51 per cent 12 month bonus), 3.01 per cent (including 1.50 per cent 12 month bonus) and 3 per cent (including 2.5 per cent 12 month bonus) respectively. However, you should set a reminder in your diary to move your cash at the end of this period as the bonuses will mean your interest will drop.

In fact, Hagger advises that you might need to move it before this: “Just because the rate is a best buy when you take it out, don’t expect it to always remain that way – keep an eye on best buys online or in the paper every couple of months to ensure you’re not losing out.”
Louise Holmes of warns: “Some deals may promote themselves as easy access, but have restrictions on the number of withdrawals allowed during the year.” Nationwide’s MySave Online Plus is an example of this – if you make more than one withdrawal a year, the interest rate will plummet to just 0.10 per cent.

The best paying accounts only give you access via the internet. For any technophobes
who want to be able to call up their provider, the ING Direct Savings Account, which guarantees 3 per cent interest for 12 months, is currently a good buy. However, one can have too much saved in cash.

Although having ready access to liquidity in case of a crisis is a must, many people have too much of their money in instant access cash accounts when it could be earning more elsewhere. Building fires and reading maps are unnecessary skills for most in the modern world, but the motto of the scouting movement – “be prepared” – should be the first rule for savers. However, don’t hold so much that your wealth is eaten away by inflation.