The general rule of thumb is that you shouldn’t consider investing until you have built up enough savings to support your lifestyle for six months. This is because investing is generally a long term strategy of at least five years, and cashing out early can be harmful to the value of your investments.
However, with interest rates at an all time low, and even talks of negative rates being tabled, savers are now wondering what the best thing to do with their cash is.
Negative rates are being considered as a measure to encourage spending and thus revitalise the UK economy. Banks will be motivated to lend money to businesses at a cheap rate, loans and mortgages will become more appealing and money will start to flow into the economy. If negative rates are introduced, then money in savings accounts will become completely stagnant and more and more savers will turn their attention to the investment market.
What does this mean for you? In the first instance it’s important to explore whether negative interest rates are actually likely to occur or whether this is all just hot air. Whilst other countries have employed this tactic, it is widely reported that the Bank of England is not quite there yet, however, for investors the general message remains the same in the current low interest environment. Replacement income in the form of dividend income is a strong path to follow, as are growth businesses who can utilise today’s low interest rates in order to efficiently borrow money to create strong revenues tomorrow.
In the event that interest rates do turn negative, your assets would be affected in different ways. There is a small chance that you would get charged for holding your money in a savings account and Government bonds are likely to be negatively affected. However, savers turning their attention to riskier options such as corporate bonds and equities, should be aware of the volatility of such actions.
Perhaps in times of negative interest rates it would be worth turning our attention to Gold, a commodity that is positively affected and a much safer option.