Your cash
Money sitting in cash
Holding cash is a decision, not the absence of one. Here is what that decision does over time, what the alternatives look like, and the four questions worth answering before you change anything.
Still in the account
£50,000
What it actually buys
£37,205
£12,795 of spending power, gone, and the balance never moved. Interest paid on the account reduces that gap, and only closes it if the rate beats inflation.
Each square is one per cent of what you started with. The hollow ones are what inflation has taken, without a penny leaving your account.
An illustration of arithmetic, not a forecast. It shows what a stated rate of inflation does to a stated sum over time. It is not a prediction of inflation, it takes no account of interest earned or tax, and it is not advice. Read it alongside our guide to what inflation is.
The problem with standing still
Cash does not fall. What it buys does.
A savings balance is a flat line. That feels like safety, and for money you need soon it is. Over longer periods the flat line is the risk, because prices keep moving while the number does not.
- Today
- £50,000
- Buys, after five years
- £43,130
- Buys, after ten years
- £37,205
- The same £50,000 in the account, buying £12,795 less than it does today. Interest earned on the account reduces that gap, and only closes it if the rate beats inflation.
How this is worked out. £50,000 with prices assumed to rise 3% a year, before any interest. It is an illustration of how inflation works, not a forecast of inflation, and not advice. Read it alongside our guide to what inflation is.
In fairness to cash
There are jobs only cash can do
Cash is instantly available, its value in pounds does not fall, and it is protected up to the FSCS limit at an authorised bank. For an emergency fund, a deposit you will need next spring, or a bill you know is coming, nothing else comes close.
The problem is not cash. It is cash doing a job it was never built for: holding money for five, ten or twenty years, when the thing you are trying to protect is not the number but what the number buys.
Where the difficulty starts
The rate has to beat inflation, not just be positive
A savings account paying interest still loses ground if prices are rising faster than the rate. The balance goes up and the shopping it covers goes down. That is why our guides talk about a return that is more than inflation rather than simply a good rate.
It is also why the question is rarely cash or shares. Between the two sits fixed income, where you lend money for a set period at a set rate. Bonds are explained here.
Where the money came from matters too. A lump sum from an inheritance or a gift raises questions a steadily saved balance does not, and money earmarked for something dated, such as a wedding, belongs on a different shelf again.
Before you move anything
Four questions worth answering first
In this order. Each one changes the answer to the next, and the first two have nothing to do with investing at all.
- 01
When might you need it?
This is the question that decides everything else. Money you may need inside a year or two belongs in cash, whatever inflation does to it, because you cannot afford for it to be worth less on the day you need it.
Building an emergency fund - 02
Do you owe anything expensive?
Paying off a credit card charging 25 to 35 per cent is a guaranteed return that no investment can match. Debt comes first, then the emergency fund, then anything else.
How to pay off a credit card - 03
How much of a fall could you sit through?
Not in theory, but genuinely: if the balance dropped by a fifth and stayed there for two years, would you leave it alone? If the honest answer is no, that tells you the level of risk to look at.
Try the risk tool - 04
Is the money in the right account?
Before choosing investments, check the wrapper. An ISA shelters returns from UK tax, and the allowance is use it or lose it each year.
How ISAs work
When you are ready
Read, decide, then choose where to hold it
There is no form here and nobody will call you. When you have read enough, our directory lists UK investment platforms authorised by the Financial Conduct Authority so you can compare them and open an account yourself.
Information, not advice. This page is general information about how cash and inflation interact. It is not personal advice and not a recommendation to move any money. The value of investments and any income received from them can fall as well as rise, and investors may receive back less than they originally invested. Past performance is not a guide to future returns.