For a long time, keeping large amounts of money in cash came with an obvious drawback: interest rates were extremely low.
That has changed. Some fixed savings accounts are currently offering rates above 5%, while Moneyfacts reports that fixed savings rates have strengthened again. At its latest meeting on 17 September, the Bank of England held Bank Rate at 3.75%, although three members of the Monetary Policy Committee voted to increase it to 4%.
For savers who remember earning next to nothing on cash, that can make today’s rates look particularly attractive. And it raises a perfectly reasonable question: if I can earn a decent return without taking investment risk, why would I invest at all?
The answer comes down to what the money is actually for.
Cash Has an Important Job
Cash should form part of most financial plans because money that may be needed at short notice generally needs to be accessible and relatively predictable. That could include an emergency fund, money set aside for a house move, a holiday or other known expenses over the next few years.
If you are planning to replace the car next summer, for example, exposing that money to short-term market movements may not make much sense. There is real value in knowing that £20,000 will still be there when you need it. But that does not necessarily mean cash is the best home for money you may not need for another 10, 20 or 30 years, where a longer time horizon can change what is appropriate.
A Good Interest Rate Isn’t the Same as Long-Term Growth
Today’s savings rates look attractive partly because of what came before them. For much of the period following the financial crisis, interest rates were exceptionally low, so the current environment feels very different. But cash rates move over time, often in response to changes in the Bank of England’s Bank Rate and wider economic conditions.
At its September meeting, the Bank of England held Bank Rate at 3.75%, although three of the nine members of the Monetary Policy Committee voted for an increase to 4%. The Bank also highlighted increased risks to the inflation outlook, which is a useful reminder that the direction of interest rates is never guaranteed.
An attractive savings rate today therefore tells you relatively little about what cash might earn over the next decade. Investment decisions, by contrast, are generally made with a much longer time horizon in mind, so it is important not to let a particularly attractive short-term savings rate drive a decision about money intended for many years into the future. Investments are designed to help grow your money for the future over the longer term. You should keep in mind that both are exposed to market movements, meaning values can go down as well as up, and you may not receive back the full amount invested or saved into a pension.
Inflation Still Matters
There is another number worth considering alongside the interest rate on your savings account: inflation. UK inflation currently stands at 3.1%, according to the Bank of England. If your savings are earning 4% while prices are rising by roughly 3%, the purchasing power of your money is not actually increasing by the full 4%.
That does not make cash a bad option, but it does mean the headline interest rate does not tell the whole story. Over longer periods, the objective of investing is generally not simply to preserve the number sitting in an account, but to give money the opportunity to grow faster than inflation. That potential for higher long-term growth comes with risk, of course, and the value of investments can fall as well as rise, particularly over shorter periods.
The Question Shouldn’t Be Cash or Investments
This is where financial planning becomes more useful than simply comparing rates. The question is rarely just whether you should hold cash or invest. A more useful question is how much of your money needs to remain in cash, and how much could be working towards longer-term goals.
The answer will depend on your circumstances. Someone approaching retirement may understandably want a larger cash reserve than somebody in their thirties with decades before they expect to access their pension. Likewise, someone planning to buy a house next year will have very different priorities from someone investing for grandchildren who are still at primary school. The right balance depends on what the money is for, when it may be needed and how comfortable you are with investment risk.
Don’t Let Today’s Rate Make a 20-Year Decision
Periods of higher savings rates can create an interesting temptation. Cash feels safe, the return is visible and, compared with markets that move every day and occasionally produce uncomfortable headlines, it can seem entirely rational to leave long-term money sitting in cash while waiting for a “better time” to invest.
The difficulty is that nobody reliably knows when that better time will arrive. A decision made because of today’s savings rate can end up shaping what happens to your money for many years, which is why separating money by purpose and timescale can be so useful. Cash may be more appropriate for money you are likely to need in the near term, while investments can be better suited to money that has time to ride through the inevitable ups and downs of markets.
Different Money, Different Jobs
Cash and investments are not really competitors because they serve different purposes. Cash can provide certainty, accessibility and peace of mind, while investments offer the potential for longer-term growth. For many people, a sensible financial plan will therefore include a combination of both, with each playing a different role depending on when the money may be needed and what it is intended to achieve.
So rather than asking whether today’s attractive savings rates mean investing no longer makes sense, the more useful question might be:
What job do I need this particular pot of money to do?
Once you know that, deciding where it should sit becomes much easier.
Approver Quilter Financial Services Limited September 2026