JEFF PRESTRIDGE: Seize the moment… make more of your savings

On Thursday, we are likely to see another notch up in the Base Rate – to 5.25 or even 5.5 per cent – as the Bank of England battles against the economic evil that is inflation. A war it was ill prepared for and one it has yet to win. Heads will roll, that’s for sure.

For many borrowers, higher interest rates are wretched news. But for savers, they provide an opportunity to earn a juicier stream of income.

Savers should therefore seize the moment and ensure they are maximising returns. 

On easy-access accounts, don’t accept anything less than an interest rate of four per cent plus.

Although cash reserves look attractive as rates rise, they shouldn’t be the only component of your financial armoury. 

In the fast lane: Savers should seize the moment and ensure they are maximising returns

If you want to build long-term wealth, you also need to look at other income-producing assets such as shares and bonds – preferably held within the tax-friendly wrapper of a pension or Individual Savings Account. 

Shares, especially, provide the opportunity to benefit long-term from an enticing mix of growth in income and capital returns.

The case for equity income – and by implication equity investing – was made very strongly by investment manager Janus Henderson a few days ago when it released data on global dividends paid by companies last year.

According to its analysis, global dividends grew by more than 20 per cent in 2022 to a total of £1.26 trillion. Although it is more conservative about the year ahead – primarily because of concerns over the health of the global economy – it still believes that dividend growth in 2023 should be in the order of five per cent.

Attractive as the numbers are, the argument that hit me between the eyes like a laser was Janus fund manager Ben Lofthouse’s in support of equity income and equity investing.

Lofthouse, manager of investment trust Henderson International Income, says there is a ‘big opportunity cost’ for people ‘in fleeing to the perceived safety of cash’.

He adds: ‘Not only does today’s high inflation [7.9 per cent in the UK] ensure that savings are still relentlessly losing purchasing power, but stock prices typically turn strongly upwards when markets judge that the global interest-rate cycle has turned from hikes to cuts.

‘Nobody knows exactly when that will happen, but when it does, it will do so quickly, wrongfooting those who opt to sit on the sidelines.’

He concludes: ‘Dividends are a critical piece of the puzzle. Of course, they mean real cash for investors year in, year out, but the fact that they grow is the true key to building wealth.’ Beautifully put. In summary, if you want to build long-term wealth, keep investing through thick and thin – preferably on a regular monthly basis and via a portfolio of funds or stock market listed investment trusts that spread your risk across both markets and stocks.

And if you want to benefit from the critical piece of the investment puzzle – namely, growing dividends – take a look at the income finder section of the Association of Investment Companies website at theaic.co.uk. Ideas aplenty.

Open the door to allow more banking hubs to open – nationwide

I trustCash Access UK, the organisation responsible for overseeing the introduction of banking hubs, will respond positively to calls to make the rules governing where hubs are located more flexible.

Currently, hubs – managed by the Post Office and providing services for all bank customers – can only be set up in a town where ALL the banks have shut their branches. But ALL includes building society Nationwide.

So, if Nationwide still has a branch in town, a hub cannot be set up.

This is despite the fact that the society does not offer business accounts, so is not an option for a retailer wanting to bank cash takings. Nationwide also does not provide accounts for charities or clubs. Hemel Hempstead Town Council in Hertfordshire believes this rule is unfair. The town, with more than 30,000 residents, will lose its last bank (Barclays) in September and is desperate to have a hub. But the presence of a part-time Nationwide branch in the town prevents this.

In a letter just sent to Derek French, a longstanding campaigner for shared bank branches, Nationwide says it has no (unintentional) wish to block access to cash for small businesses or charities.

As a result, it fully supports the setting up of hubs in towns like Hemel where it remains the last ‘bank’. In the letter, it says its biggest wish is for local communities ‘to thrive’.

If only the big banks thought the same. Good on you, Nationwide. The town council now intends to contact Cash Access UK to see whether Hemel could be used as a ‘pilot’ for a hub in a community where the last ‘bank’ is Nationwide.

I hope that the organisation responds favourably to this request. It would open the door for more hubs to be introduced into communities deserving of them.

Stellar customer service puts banks to shame

I have just spent a week in the Lake District. For the most part, the sun has shone – as big a miracle as the Financial Conduct Authority Consumer Duty rules ever working.

What do I love about Ambleside, my base, apart from the surrounding fells?

Best foot forward: Stellar customer service from local businesses puts banks to shame

It’s the stellar service you receive – from the smiling publican serving you a sumptuous pint of local ale through to the landlady at the bed and breakfast who is prepared to take time out of her day to show you the perfect spot for some wild swimming (thank you Tina of Wanslea Guest House).

No wonder the banks have long deserted the town. They don’t fit in. Customer service? They wouldn’t have a clue other than to suggest you interact with a bot.

Fairer deal on finance? Fat chance

Tomorrow sees the introduction of new rules designed to ensure that the country’s financial services companies deliver good and fair outcomes for customers.

Fat chance of success, I say, given that previous initiatives introduced by the city regulator – ‘treating customers fairly’ – ended in dismal failure.

The so called ‘Consumer Duty’ rules are being brought in by the Financial Conduct Authority (FCA), and on paper are well-intentioned. They are aimed at creating a Utopia-like financial world where consumer-friendly products and stellar service are the norm, not the exception. Fairness, value for money and ongoing customer support, we are told, will be givens.

Maybe I’m too cynical, but I can’t see how the FCA – using these rules – can bring about this sea change in the financial industry’s behaviour without devoting huge new resources to monitoring what companies are up to. These extra resources will cost money – which will be passed on to companies through higher fees and then on to customers. I fear the only result of these new rules will be a regulatory quagmire.

A good starting point for the FCA tomorrow morning would be to look at whether the behaviour of insurance companies in setting renewal premiums passes muster under the new rules.

Currently, those with home or car insurance can challenge a renewal premium. Often, but not always, they are offered a better deal (well done them). But how does that square with the new Consumer Duty rules? It’s a question Ian Hughes, chief executive of consultancy company Consumer Intelligence, raised with me last week.

He says: ‘If an insurer is prepared to change the price for one group of people (the ones who call in and complain) and not for those that don’t, then at least one of the prices can’t be fair value. Bottom line, they [the offending insurers] should incur the regulator’s wrath. Everyone should be getting the same, fair price.’

Absolutely. I await a response from the FCA with bated breath.

This post first appeared on Dailymail.co.uk