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Deciding Whether to Save or Invest

Interest rates are currently higher than they have been for many years and a question we get asked regularly is whether clients should invest in deposit accounts rather than an investment, or whether they should draw funds from their investments to put into a high interest deposit account.

It is easy to understand why, as over the last 3 years, investors have had a difficult time with high levels of volatility and muted returns. This has affected both cautious and high-risk investors, as all types of investments have been affected by the effects of rising inflation.

To combat rising and persistent inflation, central banks raise interest rates. This is great for savers and annuity rates, but mortgages and economies are negatively affected. High interest rates tend to choke economic growth prospects and the aim is to reduce them as soon as possible.

High interest rates also affect company share valuations which is why we are seeing an extended period of volatility in investment markets.

For those with funds to invest, it may be tempting to put funds into a deposit account paying 4-5% for 1 or 2 years. However, the starting point should be, what are your plans for this money? If the funds are going to be needed in the next 1-3 years, cash deposits are always the sensible option.

If you intend for the funds to be held for the medium to long term (5-15 years +) and are looking for growth returns, investments containing shares is likely to provide superior returns over that time, particularly where dividends are reinvested.

It is important for investors to remain focussed on their objectives and not try to time the best point at which to take money out of investments. Decisions based on emotions can result in poor outcomes and in this scenario, selling investments when they have fallen and investing for a couple of years in high interest to then go back into investments when the prices have risen are likely to see investors losing out overall. Missing out on the first days of a stockmarket recovery can have a negative effect on the long term returns of a portfolio.

We are in the middle of an economic cycle which has occurred a number of times in the past. The cycle will move on, we just can’t know when this will be. In the meantime, it is vital to stay steady, trust in the process and your professional advisers to navigate through this difficult time.

If you would like to understand whether investing may be suitable for you and your own personal circumstances please contact us on 0330 320 9280, email or complete our online enquiry form.

 The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Craven Street Financial Planning Limited is authorised and regulated by the Financial Conduct Authority.


Ruth Dolan
Financial Planning Director & Head of Legal Relationships
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