Last month I spoke about how much cash you should keep in an emergency fund. This month, I want to make a few more important points about holding cash accounts for long periods.
Cash accounts should be held to provide funds for emergencies, but they should not be regarded as a long-term investment. Over most periods, the interest paid on cash accounts does not keep pace with inflation, as can be seen in the chart below.
| Year | Base Interest Rate (end of year) | Average Inflation Rate (cpi) |
| 2015 | 0.5% | 0.0% |
| 2016 | 0.25% | 0.7% |
| 2017 | 0.5% | 2.7% |
| 2018 | 0.75% | 2.5% |
| 2019 | 0.75% | 1.8% |
| 2020 | 0.1% | 0.9% |
| 2021 | 0.25% | 2.5% |
| 2022 | 3.5% | 9.1% |
| 2023 | 5.25% | 6.8% |
| 2024 | 4.25% | 3.3% |
When I ask my clients to update me with their cash information, many are holding on to far too many accounts paying low rates of interest, and they certainly have not reviewed them recently. May I suggest that now could be the time for a spring clean? You may find sufficient surplus cash to fund a stocks and shares ISA before the end of the tax year. This could give you the opportunity to earn some tax-free dividends or interest, plus, hopefully, some capital growth, with no penalty for instant access.