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What to do With Your Cash?

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There are many types of investment you might hold. Stocks and shares, property, bonds and peer-to-peer lending are all options that can potentially bring good returns. But obviously you will need to keep some of your money in cash, and it can be much harder to make the most of this.

A lot of investment guides will and expert advisers recommend certain mixes of investments for your portfolio. This will usually take on a format like x% stocks, y% bonds and z% cash. In other words, cash is treated as part of your portfolio. It will never have the same potential for profit as investments, and mostly represents a mixture of practical spending power and security rather than true investment. Nonetheless, this doesn’t mean you can’t make the best of it and pursue the best returns possible on the cash portion of your portfolio.

ISAs

The first place you will probably think to turn for cash savings is an ISA. This idea may seem obvious, but it is also well-founded. Many stocks and shares ISAs will also be able to contain cash, but to get the best interest rates you will probably have to open a separate cash ISA. You probably won’t envisage needing to take money out again in the first year or two, so choose a fixed rate with withdrawal penalties rather than easy access. If the money is left in place for a reasonable amount of time, this will usually deliver a better net interest rate than an easy access ISA even when withdrawal penalties are taken into account.

High Interest Current Accounts

Naturally, some of your money will need to be readily available for day-to-day spending rather than tucked away in a savings account. For this portion of your cash, it is definitely worth considering a high interest current account. These offer interest rates better than many savings accounts for money which, as with any current account, you will be able to readily access for cheques, card payments, online spending and cash withdrawals. There is usually a limit to how much money will benefit from the high rate, but even if you want to hold more money in your account this will still likely give a significant boost to your current account interest.

Switch Regularly

ISA rates might hopefully improve in coming years, and high interest current accounts will drop down to a more normal interest rate after a certain period. This is why it is useful to avoid falling into the trap of not maintaining the cash portion of your portfolio as carefully as your investments. If the market improves or your high interest account comes to an end, look elsewhere. This is another reason why it is useful to take fixed rate ISAs with withdrawal penalties that won’t be deal breakers. Even if you are not at the point where you can close the old ISA, you will still be able to take your money out and put it somewhere better.


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