Please don’t make the stupidest mistake too many savers make

Our banks’ financial advisers (greedy salespeople), our financial advisers and financial journalists are constantly telling us that, as interest rates are so low (and� will be for a few more years), we cannot get a savings account which will protect our money from inflation. So, these good people tell us, we should be putting our money into things�like unit trusts, ETFs (Exchange Traded Funds), ‘Growth Bonds’, ‘Kick-out Bonds’ and all kinds of other savings and investment schemes. One mantra they repeat is that ‘shares always outperform cash’. However, we should beware of these people’s motives. HSBC or Barclays or Lloyds salespeople just want to earn commissions and advance their careers – they don’t care what happens to our money. Financial advisers too are commission driven. Just to stay in business, a financial adviser has to earn about �100,000 a year to cover salary and costs. And as for financial journalists, like fashion journalists, they have to find something ‘new’ and ‘exciting’ to write about each week and have to drum up business for the firms advertising in their papers and magazines�- they’d be out of a job if all they wrote was “leave your money in a high interest deposit account”.

To get us to�move our money from risk-free products (e,g a 2-year fixed interest account) to risky products (unit trusts, ETFs, bonds) financial services insiders will often talk up the potential to earn an ‘inflation-busting’ 4% or 5% or whatever. At first sight this looks tempting and over �20bn a year is flowing out of risk-free bank accounts into riskier products. But when moving their money, many people are making a fatal mistake – they are just looking at the inviting 4% or 5% or whatever, but they are not comparing it to what they could get without any risk at all. A 2-year fixed deposit account will pay about 3.5% at the moment. So, if some salesperson or journalist�is touting something that ‘could’ earn say 5%, you’re actually risking your money for just 1.5% (5% minus 3.5%) – not 5%. And that is a risk not worth taking.

Next time some ‘adviser’ or journalist starts gushing about some financial product which ‘could’ earn 4% or 5% or whatever, please compare this to what you would get by placing your money in a risk-free fixed interest account. You’ll usually find the risky product is simply not worth the trouble.