Are you holding too much cash?

When inflation rises, cash needs careful management.

Over the last five years annual CPI inflation averaged 2.1%, making £100 in September 2016 worth £89.95 half a decade later.

A recent strategy paper published by the Financial Conduct Authority (FCA) stated, “Many consumers who might gain from investing currently hold their savings in cash.” Those words may sound as if they originated from a trade lobby for investment managers, but unusually, it’s the FCA that is concerned. Research carried out on its behalf revealed that over a third of adults with more than £10,000 of investible assets held all those  assets in cash.

Make no mistake: we all need some readily available money – a rainy day reserve – to help us cope with the unexpected, be it a car repair or broken boiler. Ideally, such money should be in an instant access account, so that it is immediately available, although at present these accounts pay minimal interest.

When interest rates are below the rate of inflation, the longer you hold cash, the more buying power it loses. For example, over the last five years to September 2021 annual CPI inflation averaged 2.1%, making £100 in September 2016 worth £89.95 half a decade later. During that period the Bank of England base rate was never above the inflation rate.

Interest rates are now expected to rise, but only gently, given the headwinds faced by the UK economy.  Meanwhile, inflation is projected to be above 4% by January 2022. If you want to preserve the long-term value of your money, whether it is personal capital or invested in a pension plan, now is the time to consider alternatives to deposits. To discuss the non-cash options that best suit your circumstances, please contact us.

Investments do not offer the same level of capital security as deposit accounts. The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. Past
performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk
and financial circumstances.

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