Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

Low returns from cash – what are the alternatives?

Hardly a day goes by without a news story about the terrible returns savers are receiving on cash. Sometimes the focus is cash ISA providers, at other times it is National Savings & Investments or it may be plain old savings accounts held with a bank.

Lee Dooley Lee Dooley
13 November 2013

The value of cash is shrinking in real terms

Whatever the account, the news is always a reminder of the pressure that cash savers currently face and again highlights that cash accumulated in most accounts is likely to fall in value in real terms over the next few years. This is because the base rate is stuck at an all-time low of 0.5% and also because banks and building societies have little incentive to offer appealing interest rates in a bid to attract cash savings because they have access to cheap money via the Bank of England’s Funding for Lending Scheme. When you factor in inflation, which, at close to 3%, is currently higher than most rates paid out to cash savers, the impact on cash savings is clear.

What should you do with your cash?

While it is always important to hold a proportion of savings in cash to act as a safety net, if you want your savings to work harder for you or you need to generate an income, it is likely you will need to look further afield than cash. As a general rule of thumb, we suggest clients hold around six to 12 months of annual expenditure in cash, with the rest being invested into other assets such as equities and bonds that have the potential to provide higher returns over the medium to longer term.

Alternative options

1. Investing for Income

In this guide we look at the challenges facing income investors and set out what we believe are some of the best options. We cover:

  • Equity income
  • Bonds
  • Income through commercial property

2. Investment ideas for income seekers

If you would like specific income-generating investment ideas, the Search for Income sets out a number of equity income and bond fund options chosen by our senior research analyst Robert Harley.

3. A managed solution

Our Multi-Asset Portfolios are an excellent, cost-effective option if you would rather leave the choosing and managing of your investments to the professionals.

  • Choose from five investment strategies, each designed to meet different investment needs and attitudes to risk
  • Each portfolio contains a well-diversified mix of extensively researched investments
  • Invest from just £500

Download our MAP guide to find out more.

Transfer your investments

This article is not a personal recommendation, or advice to transfer your investments. The value of investments can go down as well as up, and you may get back less than you originally invested. Different funds have varying risks depending on the underlying asset allocation, or the geographical area/industry sector in which they invest, and you should ensure you understand these risks before investing. Tax rates and the availability of tax reliefs will depend on your personal circumstances, and are open to change in future.