Everybody should have money available in cash. If nothing else, this can be used to cater for any short-term emergencies and avoid the need of having to take on debt.
Some people need to have much larger holdings in cash. This could be because they are wary of taking investment risk or need to ensure their money is protected in the short term.
Keeping money in cash does provide protection in absolute terms, because the value of cash holdings won’t go down. However, with interest rates still at historic lows, most cash savers have been losing money in real terms, after inflation is taken into account.
While inflation has fallen back recently, this might only be short- term and it still doesn’t seem that savings rates will rise significantly any time soon.
You could take more risks in the hope of getting a better return. However, you must make sure that you’re comfortable with the risks and can tolerate any capital losses, especially in the short term.
Stockmarkets have gone up a long way in the past six years and many fixed-interest stocks are also looking expensive.
If you’re not comfortable with investment risk, then you should search around to find the best cash savings rates, make sure you stay within Financial Services Compensation Scheme (FSCS) limits of £85,000 per bank or building society and save your money as tax efficiently as possible, including using cash Isas.
To find the best cash savings rates you can use comparison sites such as moneywise.co.uk/compare.