Is Cash Still King?

As of last week, the Bank of England reduced its base rate to 4%, marking its lowest level in over two years. This forms part of a continued downward trend in interest rates and has important implications for those holding significant amounts of cash. 

For the past couple of years, higher rates have made cash more attractive. But that window is closing. With further cuts expected, it is time to reassess the role cash plays in your financial plan.

The shift: from reward to risk

Recent years have seen competitive savings rates, but that is now changing:

• Savings rates are likely to fall in response to the latest base rate cut, with further reductions expected.

• Inflation continues to erode the real value of money held in cash, particularly if interest earned falls below inflation.

• Cash is not tax efficient. Interest is taxed as income, often at a higher rate than capital gains, which can reduce your net returns.

Cash was never designed for the long term

While cash has a role, it has never been considered a long-term investment. Research consistently shows that, over time, diversified investment portfolios tend to outperform cash, often significantly, when measured in real terms.

When interest rates were high, this gap felt less urgent. With rates falling, the long-term drawbacks of holding too much cash are becoming harder to ignore.

When holding cash still makes sense

There are still good reasons to hold cash when used intentionally:

• Emergency funds. Cash provides liquidity when you need it most and saves you from dipping into longer-term investments.

• Planned short-term spending, such as a house deposit, holiday, or tax bill.

• Cash set aside for known plans. This could include upcoming financial commitments or earmarked funds while progressing through a financial planning process.

Even in these cases, how you hold cash matters. Maximising returns and minimising risk by using the most suitable accounts or providers can make a meaningful difference. We can help with this, simply and effectively.

The bigger picture: long-term planning

With rates falling and inflation still present, aligning your financial strategy to long-term objectives is more important than ever. That includes:

• Targeting real growth (returns above inflation)

• Making use of tax-efficient wrappers such as ISAs, pensions and investment bonds

• Investing in a way that supports your broader goals, whether that is building wealth, creating flexibility, or securing your future

Final thoughts

Emergency or short-term need: Hold cash, but optimise return and minimise risk.

Long-term growth and goals: Invest to beat inflation and improve tax efficiency.

Unsure what is right for you? We can help assess and align your plan to your objectives.

Cash still has a role, but it is increasingly limited. With interest rates falling and inflation quietly chipping away at value, making smarter choices with your money is more important than ever.

If you’re holding more cash than you need, or you’re unsure how best to balance your short and long-term priorities, we’re here to help. Speak to one of our financial planners today and take the first step towards a strategy that works harder for your future.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.