"We can shuffle portfolios of shares, bonds and funds in a second, but managing cash, the essential fuel of every investment idea, remains cumbersome"by Andy Davis / January 19, 2017 / Leave a comment
Published in February 2017 issue of Prospect Magazine
Last summer, Paul Lewis of the BBC’s Moneybox programme wrote a provocative article arguing that since 1995, simply moving your cash each January into the best-buy deposit account would have mostly produced a better performance than investing it in a FTSE 100 tracker fund. Whatever you think of this comparison, Lewis’s advocacy of “active cash”—managing bank deposits to generate the highest returns rather than leaving them where they are regardless of the interest rate—is worth following, particularly now that decent rates are so hard to find.
The problem is that it is so difficult to do in practice. Opening new bank accounts is time-consuming and bureaucratic, thanks to the rules that banks must follow in areas such as money laundering. This helps to explain the massive inertia in the savings market that keeps so much money languishing in accounts where it earns next to nothing. Moving it somewhere better is just too much trouble, especially if the gain is just a few tenths of 1 per cent in extra interest. In any case, within weeks the new account will no longer be the best deal and we have to go through the whole process again.