Cash savings feel safe. That’s the main reason so many people default to them, even when history shows that investing provides significantly higher returns in the long run. It’s a subject that Laura Suter, Director of Personal Finance at AJ Bell, is passionate about – and one that financial advisers frequently find themselves addressing with their clients. That’s why we invited Laura on to our podcast IFA Talk to discuss the details, and we’ve put together the highlights for you.
“There’s a lot of safety in cash, isn’t there?” says Suter. “There’s that perceived thing of people not losing their money. Now, obviously, we know that once we factor in inflation over the long term, people are actually losing out in terms of the pricing power of their money.”
So, while that cash may sit neatly in a bank account, giving savers a reassuring sense of security, the reality is that inflation quietly eats away at its value. The longer it stays there, the more its spending power diminishes.
The silent killer of wealth
Cash may feel risk-free, but as Suter points out, it’s far from it. “I think we need to do a better job of explaining to people the real impact of inflation on cash,” she says. “It’s a tricky thing. You get into quite a lot of jargon, and I think we need to really simplify it.”
Put simply: if inflation runs at, say, 3% a year and your savings are earning just 2%, you’re effectively losing money. Over time, this can have a serious impact on long-term financial goals. Yet, millions of savers continue to put their money into cash ISAs despite the numbers showing they could be missing out.
“We looked at some figures earlier this year,” says Suter, “and there are about 3 million people in the UK with £20,000 or more in cash ISAs, who have no stocks and shares ISAs.” That’s a huge amount of money sitting idle, missing the opportunity to grow.
The emotional side of investing
One of the biggest barriers to investing, Suter believes, is the fear factor. “Lots of people out there who’ve never invested before find it quite a scary world to get into. They think it’s really complicated or that they need to have loads of money to get started.”
The reality? You can start with small amounts, and you don’t need a finance degree to be successful. However, the industry still has work to do in making this clear. “We have to get better at explaining the basics of investing in a way that doesn’t feel intimidating,” she says.
What is the role of financial advisers?
Financial advisers play a crucial role in helping clients understand the opportunity cost of holding too much cash. “I think the first stage is in explaining to people that cash, yes, it’s a safe haven, but it’s not without its risks,” says Suter. “You also have the opportunity cost—your money could have far exceeded the returns that you’re getting from cash if you had invested.”
One of the biggest challenges advisers face is timing. “Right now, cash is in a sweet spot,” she acknowledges. “People can get 4.5% or 5% on cash savings, which makes it harder to argue the long-term case for investing. But history tells us that over time, investments will outperform cash.”
Striking a balance between cash and investing
Of course, this isn’t to say cash has no place in a financial plan. Having an emergency fund is essential – but how much cash should you really hold?
“There’s no hard and fast rule about how much money each individual should have in cash,” says Suter. “It’s so personal. It depends on income, life stage, and spending habits. An adviser can work with clients to determine that figure, making sure they have enough cash for security but not so much that they’re missing growth opportunities.”
A good rule of thumb is to keep three to six months’ worth of essential expenses in an easily accessible savings account. However, beyond this, excess cash could be working harder in an investment portfolio. Holding too much cash for too long means missing out on the compound growth that investing provides. Over a decade or more, this can make an enormous difference to overall wealth.
The dangers of market timing
One common pitfall investors fall into is trying to time the market – pulling money out when things look bad and reinvesting when things seem better. But, as Suter warns, this is a dangerous game.
“Fund managers do this for a living and don’t always get it right,” she points out. “How can an everyday investor hope to time the market perfectly? That’s why it’s about time in the market, not timing the market.”
The problem with market timing is that investors often react emotionally. When markets dip, fear takes over, leading to panic selling. Then, when markets recover, people feel comfortable re-entering—often after prices have already rebounded. This cycle of buying high and selling low can be disastrous for long-term returns.
The power of regular investing
One of the simplest and most effective investment strategies is pound-cost averaging—investing a fixed amount regularly regardless of market conditions. This approach smooths out market fluctuations and removes the stress of trying to pick the right time to invest.
“Regular investing is a great way to overcome the fear of market volatility,” Suter explains. “By investing monthly, you naturally buy more when prices are lower and less when prices are higher. Over time, this can help smooth returns and build wealth steadily.”
For those wary of jumping straight into investing, drip-feeding money into the market over several months can make the transition feel more manageable.
Simplifying ISAs needs government help
One area Suter is keen to see reform in is the ISA system. “The ISA accounts we have are amazing, but they’ve become more complicated,” she says. “If we combined cash and stocks and shares ISAs, it would make it much easier for people to move from cash into investing in an easy step within the same account.”
She believes this simple change could make a big difference in engagement. “Right now, if someone wants to move their money from a cash ISA into an investment, they have to find another provider, open a new account, and do all this research. It just puts up unnecessary barriers.”
Dial up diversification
For those nervous about taking the plunge into investing, diversification is key. Spreading investments across different asset classes—stocks, bonds, property, and commodities—helps manage risk while still providing the potential for growth.
“There are lots of lower-risk investment options,” says Suter. “It’s not just about individual stocks and shares. Bond funds, money market funds, and mixed-asset portfolios offer a middle ground between cash and full-equity exposure.”
This approach ensures that investors are not overly reliant on any single asset class. While equities provide strong growth potential, bonds and other defensive assets help provide stability during market downturns.
The bottom line
At the end of the day, the key takeaway is this: cash is not risk-free. Inflation quietly chips away at its value, and by holding too much of it, savers could be missing out on significant growth.
“I think it’s about highlighting the options,” Suter concludes. “Investing isn’t just about stocks and shares—there are lower-risk options like bond funds or money market funds. It’s about educating people, so they feel comfortable taking that step.”
For financial advisers, the challenge is to help clients strike the right balance – ensuring they have enough cash for short-term needs while making the most of opportunities for long-term wealth growth. With the right approach, more savers might finally be persuaded to make their money work harder for them.
About Laura Suter
Laura Suter is Director of Personal Finance at AJ Bell. She is a spokesperson for the company on a range of personal finance topics and is quoted in print media and regularly appears on TV and radio. She is also a founding ambassador of AJ Bell Money Matters, a campaign to get more women investing and engaging with their finances; she hosts two podcasts; and regularly speaks at events and webinars.
Prior to joining AJ Bell she was a multi-award winning financial journalist, specialising in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications in London and New York and has a degree in Journalism Studies from University of Sheffield.
