Are you holding too much cash?

The regulator has warned cash savers that they face the risk of wealth erosion due to inflation. Are you holding too much cash?

The Financial Conduct Authority (FCA) says many savers may have too much cash and face the risk of wealth erosion.

As the regulator for personal financial products, the FCA is rightly concerned about financial scams and savers who are encouraged to choose inappropriate high-risk investments. Both are serious issues:

Against that background, it is perhaps surprising to see the FCA also warning individuals against holding too much cash: “Many consumers who might gain from investing currently hold their savings in cash”.

Other FCA research suggests that over a third of adults with ‘investible assets’ exceeding £10,000 hold that wealth entirely in cash. Lower the barrier to more than 75% in cash and the proportion rises over half. The FCA says – and the graph underlines – “Over time, these consumers are at risk of having the purchasing power of their money eroded by inflation”. At the time of writing, CPI inflation was 3.2% while the best fixed interest rate was 2.00% on a five-year bond.

We all need some cash as a rainy-day reserve to cope with the unexpected. Beyond that level, a different reason is required to hold cash in a world where interest rates are outpaced by inflation. For non-cash options that suit your risk profile, talk to us now. The longer you delay, the more inflation will erode the value of your cash.

The value of your investment and the income from it 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.

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