Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Interest rates have sat at 5.25% since August 2023. This has been bad news for borrowers, but great news for savers. It’s no wonder that some people are holding on to their cash. But can you hold too much?

Money sitting in a bank is secure, but uncertain interest rates and inflation mean that it might not amount to much over time. While money that’s invested has the chance to potentially grow (of course it could fall in value too, but that's the risk of investing).

Understanding risk

When thinking about what you want to do with any spare cash you might have, it’s important you understand and manage risk. Ultimately you need to choose a level of risk you feel comfortable with. The higher the risk, the higher the potential returns. How much risk you’re willing to take will depend on what your financial goals are, how long you want to save for and your personal circumstances.

The case for holding cash

It’s important to have a certain amount of cash set aside, so that you can draw on it when you need it. Here are a few good reasons why you should have a pot or two, to dip into if the occasion arises.

  • The ‘emergency’ pot - before you even start thinking about investing, you need to make sure you have enough cash to take care of essential expenses and emergencies should something happen. Generally, we suggest three to six months to cover a sudden loss of income or something like a boiler breaking down. It’s also worth having another pot which you can access more readily - and top up at a later stage - for times when you know you’ll be spending more than normal, such as going on holiday. A month’s salary should cover it.
  • The ‘don’t be forced to sell’ pot - History shows that markets have recovered with time, so you don’t want to be forced to sell when markets drop and lock in losses. It’s good to have a plan B. Keeping some cash to one side gives you some breathing space with a view to riding out market lows (which are a natural part of investing).
  • The ‘opportunity’ pot - having some cash tucked away allows you to take advantage of investment opportunities when the arise. Market dips may decrease the value of your investments but - on the other hand - it allows you to buy more for your money when prices are low.
  • The ‘fees’ pot - if there’s not enough money in your Cash Management Account or in cash in your account, we normally sell units from the largest holding in your account to cover your fees where the service fee is due. A customer asked our experts about this recently. You can read more about where we take your fees from here.

The case for investing

Saving in cash means you don’t risk investment losses. But for those ready and willing to take a higher level of risk, with assets such as shares and bonds, it can also mean missing out on potentially higher returns (of course, there are no guarantees).

If you take a look at the chart below, you can see that shares and bonds - over a 25-year period - have done better than cash / cash equivalents. Of course, this example is for illustrative purposes only. In reality investments go up and down and charges apply. And please note that past performance is not a reliable indicator of future returns.

Source: Refinitiv, MSCI World Index, FTSE Government Bond Index and US Treasury Bills, total returns from 31.12.98 to 31.12.23. *US Treasury bills have been used as a proxy for cash.

So, can you hold too much cash?

Potentially, yes. But only you can answer that. The reality is that it’s not an either/or case when asking yourself if you should hold cash or invest it. It’s about balance. Successful investors will hold a mix of cash and investments. The cash can act as a safety net for the here and now. While any spare cash that you invest has the ability to work harder for you in the long run. Just make sure it’s at a level of risk that you’re willing to take.

Either way there are a few routes to hold cash at Fidelity and plenty of ways to choose your investments.

Ways to invest

If you’ve been holding more cash than you now think might meet your future financial goals, there are a number of tools to help you decide what to invest in. Whether you need a lot of, or a little, support… we’ve got you.

Ways to hold cash

If, however, you want to keep some cash in your account at Fidelity, there are three easy-to-access ways you can do this.

You can read all about holding cash and investing in cash-like funds here.

Got a burning question you want to ask? Why not drop us a line. Click here to ask an expert your question.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. An investment in a money market fund is different from an investment in deposits, as the principal invested in a money market fund is capable of fluctuation. Fidelity's money market funds do not rely on external support for guaranteeing the liquidity of the money market funds or stabilising the NAV per unit or share. An investment in a money market fund is not guaranteed. The value of shares may be adversely affected by insolvency or other financial difficulties affecting any institution in which the Fund's cash has been deposited. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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Nick Sudbury

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Investment writer


Ed Monk

Ed Monk

Fidelity International


Ed Monk

Ed Monk

Fidelity International