The cash conundrum: How choosing investments instead could grow your wealth

Cash savings can be comforting. They’re familiar, tangible, and easy to access. Plus, if you shop around, you can often find some pretty decent interest rates.

However – while cash certainly has a role to play in a balanced portfolio – putting all your eggs in your cash basket could cause you to miss out.

Over the long term, investments can often be a more effective way to grow your wealth, albeit one which carries more risk.

Let’s explore how investments have historically outperformed cash, and how to make sure you have a diverse portfolio that makes your wealth work harder.

Rising inflation and low interest rates can erode the purchasing power of cash

Imagine you have £20,000 in savings. This could be in an account earning 4.5% or even 4.8% interest – respectable rates by today’s standards. But these rates aren’t likely to stick around for long, and over time, it will likely start to plummet.

If you haven’t found a high-interest savings account yet and your cash is in a current account, you’re probably receiving minimal interest.

When you also factor in inflation, it’s easy to see how your purchasing power is steadily being eroded.

According to the BBC, inflation was at 3.8% in the year to August 2025. Meanwhile, the best easy access savings accounts offer around 4.5% to 4.8% in interest, while a current account can often offer 0.1% or less.

Let’s look at an example.

In a current account paying 0.1% interest, your £20,000 will earn £20 interest in one year. However, inflation at 3.8% means that goods and services which previously cost £20,000 will now cost £20,760, significantly reducing your purchasing power.

And this is just in one year. Imagine the impact over a decade if your savings consistently failed to keep up with inflation.

Sobering statistics. Even with the best savings rates, you’re barely keeping pace with inflation. Fidelity reports that the Bank of England (BoE) is likely to continue to cut interest rates, which could further erode your savings.

Saving into an account paying 4.5% interest will help you stay ahead of inflation, but only just. In most cases, however, investments tend to vastly outperform inflation, which we’ll cover in more detail below.

Cash reserves and savings can be helpful for emergencies, income support, or a particular purchase

When it comes to cash savings, we would never say never. There are certain circumstances when having access to cash can be incredibly helpful.

As an emergency fund

Life can throw things your way without warning, such as when your boiler packs up, your car breaks down, or your roof starts leaking. Having an emergency fund can be helpful here, with money you can quickly access to get your repairs sorted fast.

In general, having three to six months’ worth of essential expenses as cash savings is a good idea. However, circumstances can vary, such as the number of people in your household, job security, income, and life stage. So, if you’re retired or have multiple dependants, you may want to consider having more in your emergency fund.

To smooth income disruptions

If you’re self-employed, or already drawing on your investments for retirement income, you may want to hold a little more cash in reserve to tide you over in case of potential income disruptions.

For a particular purchase in the short or medium term

Saving up for a particular big-ticket item, such as a car or a holiday, can sometimes be more easily facilitated with cash savings. Having a dedicated account to pay into for the sole purpose of saving for this expenditure can help you keep track of your progress.

A financial planner can help you establish an appropriate amount of cash reserves, so please speak to us if you’d like to find out more.

Invested wealth can work harder than cash to beat inflation and deliver growth

Once you move beyond short-term or emergency expenses, if you’re saving large amounts in cash, you could be missing out on potential growth.

In fact, Schroders reports that putting money in Cash ISAs has left UK households more than £500 billion worse off than if they’d invested in the stock market in the 10 tax years to April 2023.

Think about it like this. You work hard for your money, so you want it to work hard for you in return. And cash savings are quite lazy. They sit there, earn a little bit of interest if you’re lucky, and that’s it.

Invested wealth, however, is much more productive. It keeps pace with, and often beats, inflation, growing over time and building your wealth up for a more secure financial future.

Of course, this involves taking on risk. And the headlines and media frenzy around the stock markets can be noisy and off-putting. But again, according to Schroders, over the past 53 years 20% declines in the global stock market have happened roughly every five years. Even so, over this period, the market has returned 11.4% a year, which is why investing for the long term is sensible.

Creating a well-balanced portfolio of diversified investments can help to mitigate risk. Markets will always wobble occasionally, but if you keep a clear head and stand firm, your investments are likely to thank you.

Successful investing isn’t about getting rich quick. Rather, it’s about helping your money preserve and grow its purchasing power, generating the returns you need over the long term.

Get in touch

If you’d like to talk to us about creating a balanced, diversified portfolio, we’re always here to help. Email us at info@andersonfinancialltd.com or call us on 020 8943 0065.

Please note

This article doesn’t constitute personal financial advice; it is a general opinion. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) 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.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.