Insight Associates provide outsourced accounting and Finance Director services to ambitious and growing businesses. We work as your only resource or with existing staff to give you complete financial support including monthly management accounts, high level financial advice, robust controls and financial systems, funding and business planning, payroll & compliance, VAT returns and statutory compliance.

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Thursday, May 17, 2012

Is there a safe haven?

One of the very interesting and diverse aspects of our work here at Insight Associates is the huge variation in the fortunes of our clients. At any one time we can be working with businesses which are distressed where we are helping nurse them to health again (often including intensive cash management), and the others doing very well and generating cash.

This has perhaps been even more noticeable in recent years.

It is the second of these areas interestingly that is presenting a challenge at the moment. We have clients who are holding reasonable amounts of cash, generated through profitable trading. They are naturally risk adverse, so want somewhere to hold these funds and also get a reasonable return.

The big four clearing banks have in the main forgotten what it means to pay interest on deposits, with many offering such low rates it is hardly worth their while doing it. There are exceptions but mainly for long term bonds etc.

So, if you want to get any return worth talking about (and we should be looking at the very least keeping up with inflation) then you need to move the funds to other banks and institutions. Most of these are overseas or have significant overseas interests or ownership. Then are you looking at risk?

I have just this week had an interesting exchange with a senior manager with the UK arm of a certain red Spanish bank (an excellent manager incidentally, so this is no reflection on him). This bank are offering very strong rates for short-term deposits, and have been for some time. On the face of it attractive. But what of their exposure to the rather shaky Spanish economy?  They show very compelling statistics and facts about their rating and how the UK is ring-fenced, which yes shows that they would not fall if their parent in Spain fell or had difficulties.

However, I say, banking is based entirely on confidence. No-one can argue that the confidence in the UK bank would not be badly shaken, at best, if things happen in Spain, and regardless of the facts that may well lead to a run on the UK bank. No bank however strong can survive that can it?

So are there any safe havens left?  The financial world is a very uncertain place at the moment.

1 comment:

  1. Garry,

    As the head of Self Invested Pensions business, the question of maximising interest returns in a secure environment is increasingly challenging for our clients. Whilst, financial experts, may suggest there are some major banks that are more secure than others, the uncomfortable truth is, that nobody really knows what will happen in the event of a Eurozone collapse.

    Clearly all banks are exposed to varying degrees and the only sensible way of increased security, is to spread cash deposits across a number of UK banks, with the guarantee of compensation of up to £85k per person per account.

    I just hope we don't enter a scenario where multiple banks go under resulting in the Financial Services Compensation Scheme funds being woefully inadequate to actually pay out any resulting mass compensation claims.

    A good way of managing multiple accounts for cash deposits is to utilise a fund platform that provides access to a range of cash deposit options. For example, the Ascentric Platform can house a broad range of short notice and fixed term deposit accounts within a savings wrapper allowing customers to keep track of all their deposits and interest under one roof and to swap accounts more easily.

    Some worrying times ahead, and it would be prudent to spread risk.


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