Bonding with uncertainty

Craving a bit of day-to-day uncertainty, Carole weighs up the frisson of a potential premium bond win against the certainty of a miserly fixed rate…

I’m bored

I know we’re all meant to be making a show of finding something positive to say about The Situation but can I just say: God, I’m bored. I feel like it’s the certainty of knowing that tomorrow will be exactly like today that is fuelling my boredom. The bigger levels of uncertainty shrouding the outside world are too large for me to deal with, so I’m effectively shutting those out – a feat that is within my capability because years of experience have taught me that nothing ever lasts forever.

Lessons to unlearn

For the live-in Teenagers, on the other hand, I sense that their boredom and frustration have more to do with that big uncertainty. They are embedding their near-12-month experience of uncertainty deep within themselves and drawing some lessons that I fear will take a while to unlearn:

  • Never trust a politician’s promise of certainty
  • Don’t bank on any of your future plans actually coming to pass
  • Take your kicks when you can (you never know when they might be denied)
  • Oh, and never trust a politician’s promise of certainty (repeat for good measure)

Certainty versus uncertainty

All of which is leading up to me imparting the colossal news that I have, this month, bought a load of premium bonds (I say ‘colossal’ – everything is relative). Certainty versus uncertainty is an oft-visited topic for Talking Finances with Women – usually in the context of whether to keep our cash savings (like our teenagers) in a place where we can see them at all times, or give them free rein to run riot in the unknown nether regions of the stock markets.

A repeat of last year’s monologue

But what about when investing is off the table for one reason or another? This time last year I wrote about a sum of family money that we had tied up in a fixed-rate deposit account for two years and which I thought was coming to the end of its term. It turned out I was wrong and that we had another year to go. So, at the beginning of 2021, I’ve been having the same internal monologue about what is the best thing to do with this money as I had last year.

Should we fix it?

Without wishing to bore you too (ahem), I will just quickly recap on what this money was for. It had been put by potentially to help with the children’s uni expenses and, this time last year, I did a few calculations to see whether, with hindsight, we should have taken some investment risk with it when we first had the money, rather than keep tying it up in two- or three-year cash accounts until we reached the point at which we might need it (if you’re a details person you can read last year’s post here: Should we fix it? If you’re not, I’ve probably already lost you).

Upsides, downsides

It was an informative one-off exercise but the issues will always be the same. The upside of having your money in a fixed-rate deposit account is certainty. Yes, you are still exposed to some risks (the risk that inflation will gnaw away some of the interest earned, and the risk that an unprotected bank goes bust) but there is no investment risk, per se. By and large, £100 in any deposit account will still be at least £100 when you come to take it out – and with a fixed-rate deal, you have the certainty of knowing exactly how much more than £100 it will be. The downsides are that you can’t take it out before the end of the fixed-rate term and the fact that it definitely won’t be worth any more than the £100 plus the known amount of interest earned.

Dipping in in the next three years

Offspring The Elder is due to go to uni this autumn (caveat, caveat, caveat…nothing is certain, after all). But all things being equal we are likely to need to dip into this money at some point in the next three years. Now is definitely not the time to be taking investment risk with it as the short timeframe means we might not be able to choose a good moment to sell some of our investments (‘good’ in the sense of how well the financial markets are doing) in order to get the money we need, exactly when we need it.

Decent rates are hard to find

Equally, do we want to tie it up again in a fixed-rate account? Our choices are limited at the moment. Even the least financially inclined among you will know that decent interest rates – like decent cups of coffee in lockdown – are hard to find. A quick search has left me with little hope that I could get a rate of 1% or more without tying the money up for three years. Everything else from two-year fixed rates to notice period accounts (where you have to give 30, 60 or 90 days’ notice that you want to take your money out) hover around the 0.6% mark. This is barely going to cover even the low levels of inflation that we have at the moment – and leaves me feeling…well, deflated, oddly enough.

The uncertainty of winning…

So, I have opted for good-old National Savings and Investments premium bonds. With these I get the certainty of knowing that my £100 will still be at least £100 when I come to take it out and I have complete flexibility as to when I can withdraw my money. Plus, if one their recognisable envelopes lands on my door mat any time soon, I will get a momentary injection of the much-craved-for uncertainty that comes from not knowing if I have won the minimum £25 tax-free prize (probable) or the £1million tax-free prize (unlikely).

…against the certainty of a miserly rate

To match the lofty heights of a 1% interest rate that I might get by tying up the money for three years I will need one £25 a year win for every £2,500 worth of premium bonds that I buy (this is less for someone who pays tax on their interest). In my more optimistic moments, this frisson of uncertainty feels like it’s worth giving up the certainty of a miserly fixed rate for.

So there you have it. That’s as exciting as it gets round mine at the moment. Wake me up when someone is certain that it’s all over…

18 January 2021

Talking Finances is a trading name of Talking Finances Ltd. Talking Finances Ltd is an appointed representative of Beaufort Financial Planning Limited, Kingsgate, 62 High Street, Redhill, Surrey, RH1 1SH, which is authorised and regulated by the Financial Conduct Authority, FCA Registration No. 583233

This article represents the personal opinion of Carole Haswell only and does not represent any opinion of Beaufort Financial Planning Limited. Financial decisions should not be made on the basis of this article