Cash savings versus investing: Are your clients missing out on a valuable opportunity to grow their wealth?

Are your clients holding too much in cash savings? Find out why they may want to consider investing some of their wealth over the long term.

For many of your clients, cash savings may seem like a simple and low-risk option for accumulating wealth compared to investing.

Indeed, Money Marketing (11 September 2024) has reported that an estimated 3 million UK adults are holding £430 billion of “possible investments” in cash deposits due to a lack of knowledge and a belief that investing is “too risky”.

What’s more, savers have benefited from higher-than-average interest rates in recent years as the Bank of England (BoE) has increased the base rate to curb inflation.

While interest rates have begun to fall – the BoE has cut the base rate three times between August 2024 and February 2025 – many banks are still offering rates of more than 4% on easy access accounts.

Having some funds to hand to cover short-term expenses may be wise. However, relying on cash savings for building wealth over the long term could make it harder for your clients to achieve their goals.

Read on to find out why and discover how your clients could benefit from adding an investment strategy to their financial plan.

Inflation often erodes cash savings over time 

Inflation has dominated the UK headlines since it began to rise sharply in 2021 following the Covid-19 pandemic. This increase in prices has contributed to the ongoing cost of living crisis, which has put many households under financial pressure.

However, while it’s typically higher rates of inflation that cause concern, even modest levels of inflation are likely to diminish the real-terms value of cash savings over time.

The table below, published by Schroders (14 March 2024) shows how £10,000 in cash savings could be eroded by different levels of inflation over 25 years.

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Source: Schroders. Assumes no cash interest is earned on the original deposit.

As you can see, even if inflation rose by just 2% each year, a £10,000 savings pot could be reduced to £6,095 in real terms over 25 years.

So, even though the current 2.8% rate of inflation (26 March 2025)  is significantly lower than its recent peak of 11.1% in October 2022 – the highest rate in over 40 years – holding too much in cash could hamper your clients' progress towards their long-term goals.

What’s more, according to a report by UK Parliament (19 February 2025), forecasters expect the inflation rate to remain over the government's 2% target during most, if not all, of 2025.

Failing to invest could mean your clients miss out on potentially higher long-term returns

As the research published by Money Marketing demonstrates, a fear of losing money is a common reason for not investing.

However, as shown above, if your clients are relying on cash savings for their future financial security, they could be “risking” a significant loss over time.

In contrast, a Schroders (14 March 2024) review of almost 100 years of historical data reveals that equities had a higher percentage chance of beating inflation than cash across all time frames.

Additionally, the graph below shows that the likelihood of investments outperforming inflation reached 100% over any 20-year period.

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Source: Schroders

What’s more, a separate Schroders (22 April 2020) analysis of 148 years of data on the US stock market index, the S&P 500, found that the longer an individual held on to their investments, the lower the risk of loss was.

For example, if your client had invested for just one month, they would have lost money around 40% of the time. In contrast, the risk of loss fell to 30% for those who invested for a year and to approximately 10% at 10 years. At 20 years, the risk of loss was negligible.

While past performance is no guarantee of future performance, this data highlights the potential value of investing over the long term.

Delaying investing could limit opportunities for compounding growth

One of the world’s best-known and most-successful investors, Warren Buffett, has frequently attributed his multi-billion-dollar wealth to compounding, which he describes as “the most powerful force in the universe”.

In simple terms, compounding means earning returns on both your original investment and on returns you received previously. 

So, by reinvesting their returns, your clients could grow even modest investments over the long term.

This example shows how compounding returns could grow an initial investment of £10,000 over 40 years, assuming returns of 5% a year and no additional contributions after the initial lump sum.

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Source: Nutmeg. (2025).

The rate of growth increases each year as the 5% return is on larger and larger amounts.

The more your clients invest and the longer they hold on to their investments, the greater the potential for compound growth.

As you can see from the table above, if your client holds on to their £10,000 investment for just two years, they could generate a return of £1,049. In contrast, keeping their money invested for five years could almost triple their return to £2,833. Over 40 years, they could generate a return of £63,584. This shows how powerful compounding can be over time.

On the other hand, delaying investing due to an over-reliance on cash savings could make it harder for your clients to achieve their goals as their wealth will have less time to grow.

Read more: 2 Powerful ways to boost your investing confidence as a divorced woman

A financial expert can help your clients develop an investment strategy that supports their goals

If you have clients who are not currently investing or who aren’t making the most of their investments, I can help.

Working with a financial expert could allow your clients to overcome the risk aversion, lack of knowledge, or low confidence that may lie at the heart of their over-reliance on cash savings and reticence to invest.

Together we can develop a financial plan that effectively balances cash savings for short-term goals and investments made over the long term.

Get in touch

If you have clients who feel uncertain about investing or need to review their current strategy, I’d love to hear from you.

Please contact me at lottie@truefinancialdesign.co.uk or call 03300889138.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) 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. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

FP33411 – APPROVED BY 2PLAN WEALTH MANAGEMENT 21.03.2025 UNTIL 21.03.2026