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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:

  • The FCA says that 3,378 consumers reported an estimated loss of £569 million to investment fraud in the year to 31 March 2021 – an almost threefold increase since 2018. On average, the loss was over £24,000 each. The oldest truism stands at a great starting point to avoid scams: if it looks too good to be true, it probably is.


  • Research undertaken for the FCA highlighted a lack of awareness of the risks associated with investing. Nearly half of investors who chose not to seek financial advice failed to recognise that ‘losing some money’ was a risk of investing. Younger investors are taking high risks – 44% of cryptocurrencies such as bitcoin are held by the under-34s. However, nearly two thirds of that age group also claim a significant investment loss would have a fundamental impact on their current or future lifestyle.

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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