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For years, interest rates were low, inflation was steady and both financial markets and economic conditions were relatively stable.
Then the Covid-19 pandemic turned everything on its head.
Inflation began to soar and central banks around the world hiked interest rates in an effort to halt rising prices.
Now, inflation is falling – but interest rates remain high, and it’s unclear when they might start to come back down.
This makes things tricky for investors. Is short-term saving or long-term investing more lucrative right now? Which should be prioritized, and is there a way to use the current economic climate to create more wealth?
Saving vs. investing
Higher interest rates should mean greater returns on savings, but there are several things to consider, according to the experts.
“We’re now in a position where you can earn decent returns on cash, and actually, now inflation is falling you can earn higher-than-inflation on cash,” Laura Suter, head of personal finance at AJ Bell, told CNBC’s “Squawk Box Europe” recently.
But she said one thing that is often overlooked is that people will likely have to move bank accounts to get the highest rates of interest, although this process is now relatively easy.
Suter also acknowledged that the market has created a “very tricky conundrum for some investors when they’re thinking about investing for the long terms vs. how much they should have saved in cash.”
For Emma Wall, head of investment analysis and research at Hargreaves Lansdown, investing may be more lucrative in the long term.
“Investing always outperforms cash over the longer timeframes,” she told CNBC. “Over a 30-year time horizon, history suggests that investing can be twice as powerful than leaving your money in cash.”
On the flipside, savings can be useful for short-term financial goals, Claire Exley, head of wealth services at Nutmeg, told CNBC. Setting up a regular direct debit into a savings account can be one way to…
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