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Are you keeping too much in cash?

Holly Thomas / 31 January 2017

Savers are putting their hard-earned money at risk by holding too much on deposit.

A piggy bank sits on a pile of £20 notes to represent holding too much in cash

A recent study revealed that 81% of UK savers say that they will keep their money in cash accounts instead of investing it.

While their motivation might be to be cautious and preserve their savings, they actually risk seeing the real value of their savings fall because of the effects of inflation. The Bank of England's decision to lower interest rates means that returns on savings accounts won’t keep up with inflation, which means the real value of money kept in cash accounts will decline.

Alistair Cunningham at Wingate Financial Planning says: “Cash is the investment type that is most exposed to the risk of inflation. Over the longer term it tends to underperform ‘real assets’ like stocks and shares. Inflation is a very powerful destructive force.”

Learn more about investment strategies and retirement

How to beat inflation

To outperform inflation in the long term means having some investments in equities. Savers may be nervous about investing while markets fret over political tensions from the Brexit vote and the recent interest rate cut. While market volatility can be expected to continue, if you are investing for the longer term and you don’t need the money in the short term, any losses are only on paper. Selling out when the market is low is when you turn a theoretical loss into a real one.

The study by digital wealth management company MoneyFarm, says that many investors leave their money in cash because they feel that investing in other asset classes is too cumbersome (11% of savers), too difficult to decide what to invest in (18% of savers) or too risky compared to cash (37% of savers).

To counteract concerns about risk, the key is having a properly diversified portfolio across geographies, currencies and asset classes which reduces investors’ exposure to market shocks.

Are you ready to change the way you save?

How to invest

If you’re unsure about how and where to invest, it’s important to talk to a financial planner or independent adviser who can recommend the right selection of funds - if you are not confident to do so yourself. If you don’t have an adviser, you can search for one in your area at or through where clients leave reviews of their experiences with adviser firms.

Traditionally those in their 50s would start to pull out of the stock market as they approach retirement. But with the growing trend of people working longer and living longer, they are increasingly invested in the stock market for longer too.

There is no one-size-fits-all approach to investing, which means each and every portfolio must be tailored to suit individual needs and crucially, investment goals – that is, what you’re saving for.

Do you need a financial adviser?

Cash isn’t all bad

That’s not to say you shouldn’t hold any money on deposit. It is wise to have a fund that you can call upon in case your income drops – or even disappears – and you need to pay the mortgage and household bills. It is also there for when the boiler packs up or you suddenly need four new tyres on both family cars. This same pot might include money for treating the family to a luxury holiday or perhaps a brand new kitchen. You don’t want to have to sell shares at a potentially bad time for this kind of expenditure.

There is no hard and fast rule on how much money should be squirrelled away in a savings account as an emergency or rainy day fund. But a rule of thumb suggests it should at least be enough to cover essential outgoings for around six months.

Make sure you shop around for the highest savings rate you can find. Every penny counts.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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