With a large proportion of the UK working population having been on furlough in 2020, money has been pouring into money savings accounts from people whose outgoings have fallen as a result of the coronavirus crisis. Figures from the Bank of England in August showed that £16bn was deposited in June from private firms and households. Since March an additional £175 billion was deposited with banks, more than the cumulative total in most years. In the year to February 2020, a total of £98.3 billion was deposited, an average of around £8 billion per month.

So where has it gone? Most has gone into instant access accounts where, thanks to the base rate falling to record lows in March, returns are almost non-existent across the board, especially if you are a private company. Everyday savers are being offered just 0.01% on easy access deals – meaning banks rewarding savers just 50p interest for holding £5,000 for a year. According to the Bank of England the average rate on cash deposits has fallen to just 0.13% (now we’re talking! That’s a whopping £6.50 you make over a year).

However, not everyone is settling for these returns. Over the last decade sophisticated investors having been moving into the peer-2-peer and bond markets and even during Covid-19 confidence has remained high towards alternative investments.

This form of investment isn’t new. Issuing bonds and creating a debt between a lender and a borrower has been used for centuries and is the cornerstone of sovereign debt, with countries issuing bonds to finance economic recovery or just to balance the books. In response to Covid-19, the UK Debt Management Office (DMO) said in April it planned to issue £180 billion ($222.43bn) of government debt between May and July to finance the unprecedented measures to avert the collapse of the UK’s economy.

And its not just in the UK, The Wall Street Journal reported in July that US investors withdrew a net $41.62 billion from US stock funds and invested a net $79.35 billion in bond funds.

Bonds are not for everyone. With higher returns there are higher risks, and some are only available for certain investor classes such as Sophisticated or High Net-Worth investors as most bonds are not covered by the Financial Services Compensation Scheme. But with new technologies such as block-chain giving easier access and greater transparency and bonds paying higher rates of return, investors are looking to these more attractive, higher risk investments.

Being responsible post Covid-19 is going to be the key to financial advisors and investment firms. First and foremost protecting investors, the FCA has made it clear that looking after these clients is of paramount importance and defines the key drivers of vulnerability as: health, life events, resilience, and financial capability.

We should not underestimate how important financial advisers and IFAs will become over the coming months. Huge amounts of fear and uncertainty abound, and advisers are ideally positioned to calm nerves and help clients regain control of their finances. As most people are still based from home, this is a good opportunity to turn client ‘spare’ time into client ‘financial planning’ time.

With little value on the high street and low rates for cash deposits, make sure you do the same if you are looking to the bond market. Don’t just look at the rate but also look at the projects or company the bonds are invested into. And look how the bonds are issued are they simple bits of paper or are the listed on recognised exchange.

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