This is the time of year when our minds turn to New Year resolutions. What sort of resolutions could we make about our savings or investments? Have we made a plan? What about all these spurious bank accounts we set up on a whim following a column in the FT or an investment into fund which appeared to be doing well?
It’s time to take stock; lets look first at the cash situation. Have you asked yourself why you are keeping cash accounts? I suspect the answer is that you want the ‘comfort’ of knowing that you have easy access to cash if you have an emergency, That is a perfectly acceptable reason; however, you need to ask yourself how much you think you should be holding in your emergency fund. I would suggest a maximum amount equivalent to 6 months gross salary; this is a security blanket if you suddenly lose your job and gives you time to search for a replacement role.
The next question to raise is the interest paid on the account and the accessibility to your capital. After all this is why you are keeping it in the bank; there is no benefit for getting a good rate of interest if you discover that there is an interest penalty if you withdraw from the account early. It is easy to focus too heavily on the interest rate and not on access.