One of the biggest topics we’re asked about each week is the balance between cash and investment. It demands a measured response and an individual approach.

The attraction of cash

The news around mortgages has been unremittingly gloomy with more than 1 million UK homeowners expected to be paying over £500 a month more by the end of 2026. 1 The only upside of higher interest rates is being felt by those with savings.

We have grown accustomed to our savings accounts generating little or no interest and so, outside of cash ISAs, keeping anything other than short-term money in the bank has been an unappealing option. Today, accounts are being advertised with rates between 4%–5% and with ISAs of over 5% 2, which are increasingly attractive, particularly against the backdrop of worrying headlines.

It is worth noting, however, that many of the higher rate accounts are heavily caveated. For example, you might only be able to deposit a certain amount each month or the deal might only be for existing account holders. Importantly, many are fixed-term deals ending after a year, when you are switched to a lower rate.

Inflation matters

For a savings account to achieve a real return, the interest paid needs to be higher than the level of inflation. In the UK right now that stands at 6.7%, and so cash does not currently offer returns in real terms because even a 5.0% interest rate will still leave you with a real terms 1.7% loss.

There are signs that inflation is beginning to ease, and with it the need for high interest rates to keep it in check will dwindle. The Bank of England is currently walking a fine line, since keeping interest rates high risks prompting a recession and destabilising the housing market. This means the Bank is likely to cut interest rates as soon as it can, and therefore there is a likelihood of lower rates on cash savings in the future.

What is the investment outlook?

With higher rates on offer from savings accounts you would be forgiven for thinking that investing is an unattractive option today. While it is true that you might not achieve the same return this year, by investing over the longer term you will protect yourself against real term loss.

The investment picture is mixed, but looking at the FTSE 100, analysts are expecting a dividend yield of 4.1% this year and 4.4% for next. If you factor in anticipated share buybacks that UK companies are planning, which will return cash to investors, that yield figure rises to 6% for this year. 3 In the US, which has been able to get inflation under control more quickly than the UK, the S&P 500 has grown by around 16% since 31 December 2022.

An individual approach

As advisers we know that everyone’s situation is different and we’re here to help you assess your outlook across the short, medium and long term – thinking about when you might need to access your funds, and what for. The balance you hold between investments and cash should be unique to you and based on these factors.

For instance, if you are looking to buy a property in the next three years and have a deposit saved, then taking advantage of short-term higher interest rates and easy access to your money might be the right approach.

However, if you are retired and are managing your invested pension fund, we would advise against divesting at this stage when you could exit at a loss and then face the challenge of timing when to re-enter the market. Studies have shown that an investor who missed just the best 10 days of the market since 1999 would only have about half of the return from a disciplined investor who stayed the course. 4

The importance of the long-term view

Credit Suisse publishes its Global Investments Returns Yearbook annually which is based on data stretching back to 1900. The Yearbook clearly shows that equities provide the best prospects for long-term growth – they have outperformed bonds and cash in each of the 21 countries that Credit Suisse has data for. In the 122 years covered by the database, developed markets have delivered an annualised return of 5.1% above inflation, while emerging markets have achieved 3.8% over inflation. 5

It is tempting to react to the immediate circumstances we are in, but when you take into account the market turmoil that has occurred periodically over the last 122 years and the enduring performance of equities throughout that time, it paints a compelling picture to take the long-term view if you are able to.


Contact us

Whether it’s a question about your personal finances or how you can invest your wealth more ethically, we are here to help. Call us on 020 7812 1460, email or complete the form: