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Rising Interest Rates Necessitate Cash Reserves

Danish investment bank says rising interest rates and recessionary outlooks means this could be the year when keeping a part of your money in a non-investment account may make greater sense

As inflation rises around the world and global populations grow concerned about economic prospects amid unstable markets and cost-of-living crises, many financial advisers are telling their clients to safeguard sufficient cash reserves in case of unexpected emergencies.

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Damian Hitchen, CEO, Saxo Bank, MENA

“While it is not quite a return to the days when cash was king, we highly recommend keeping at least six months’ worth of living expenses in a savings account, which is not invested into the markets, that can be accessed immediately,” said Damian Hitchen, CEO at Saxo Bank (MENA). “Such accounts are currently paying quite generous amounts of interest, which has not been the case for some time, so it makes sense to utilise these while the global socio-economic situation is unstable.”

“As with any financial investment or purchase of course, doing the research and shopping around is vital to secure the highest-yield accounts – what I can say though is that Saxo Bank is currently offering some of the best rates on the market for cash.”

Saxo Bank has been offering positive interest on uninvested cash since the turn of the year. Those with US dollar accounts can currently earn 2.59% per annum on deposit balances equivalent to more than €100,000 and 3.09% for VIP clients. If global Central Bank rates continue to increase, these increases will be reflected in higher rates on your cash. Importantly earned interest is calculated daily using Saxo Bank’s bid rate minus a fixed markdown, which is determined by deposit size. The result is the larger the deposit, the less the deduction thus a higher rate of interest. Also, there are no fixed lock-in periods meaning you are free to access your cash when you need it!

Yet Saxo Bank, which specialises in online trading and investment, says challenging global scenarios are pressurising stocks, which could mean those with enough cash reserves to cushion them in the short-to-medium term may want to look at equity investments, providing they are willing to take some risk. Investors concerned about recession risk should take advantage of higher interest rates by keeping a percentage of their portfolio in cash holdings, Hitchen added.

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