Are you making the most of your cash savings?

Saving in cash may seem like a simple way to hold your wealth; you can easily access the funds whenever you need them and, over time, you might generate some interest.

As such, you may think that saving in cash is a “safe”, low-risk option.

However, you could end up leaving yourself vulnerable to the effects of inflation.

With UK Savings Week happening 22 to 28 September, read on to find out how to make the most of your money.

Over the long term, inflation could erode the spending power of your money

According to the Office for National Statistics (ONS), inflation was 3.8% in the 12 months to July 2025.

Following the Covid pandemic, UK inflation hit 11.1% in October 2022 – its highest rate for 40 years. It took almost two years for the Bank of England to bring it down to the target rate of 2%, which we saw briefly in summer 2024.

Inflation has been edging up again since September 2024.

Sticky inflation can erode the real-terms value of your cash

The Bank of England (BoE) use interest rates as a tool to control inflation.

When the BoE increases interest rates, the cost of borrowing goes up. As a result, people typically have less money to spend, so they’ll purchase fewer items. This can help to reduce demand and slow down price rises.

After sustaining the base rate at 5.25% between August 2023 and August 2024, the BoE base rate has gradually reduced to 4%.

If you have cash savings, higher interest rates are good news.

However, because inflation reduces the spending power of your money, over time, cash savings rarely win against the long-term effects of inflation.

In fact, if you had £10,000 in cash savings, and the rate of inflation increased at a moderate rate of 2.5% each year:

• Over 10 years, the real-terms spending power of your cash could drop to £7,812.
• Over 25 years, your £10,000 savings would only buy the equivalent of £5,394 today.

All this to say, if the interest you’re able to generate on your savings is lower than the rate of inflation, leaving your wealth in a cash account may not be as safe as you think.

Are you among the 29 million Brits with cash sitting idle?

Recent research from Spring – Paragon Bank’s savings app, revealed that Brits have around £526 sitting idle in current accounts earning little or no interest. Combined, this equates to around £20 billion in lost interest payments every year.

Indeed, the research suggests that more than 29 million people rarely move excess cash from their current account.

If you have money left over after paying your bills and essentials each month, you may be better off transferring the excess to an account paying more interest.

3 ways to tackle the effect of sustained inflation on cash savings

As well as taking steps to ensure your cash savings are benefiting from as much interest as possible, here are three more inflation-busting suggestions.

1. Make sure your savings are tax-efficient

Finding ways to make your savings more tax-efficient could help you retain more of your wealth and counteract the effects of inflation.

There are several ways you could achieve this, primarily:

• Increase your pension contributions – allowing you to benefit from tax relief at your marginal rate. For instance, if you’re a basic-rate taxpayer you only pay £80 for a £100 contribution. Plus, your employer may match your increased contributions and your pension provider will likely invest the funds, so they could grow faster than the rate of inflation.
• Pay into an ISA – this could help to reduce your tax burden since you don’t pay Capital Gains Tax (CGT) or Income Tax on any interest or investment returns. You can pay up to £20,000 into an ISA each year (in the 2025/2026 tax year), so you may want to consider making use of the full allowance where possible.

Read more: 3 practical benefits of saving into an ISA

2. Consider investing

While it’s sensible to keep an accessible cash cushion on hand in the event of an emergency, investing in assets that are likely to produce a higher rate of return than interest rates could help you to beat inflation.

Investments typically perform better than cash savings and provide the potential for growth that beats inflation.

It’s important to remember the market can experience short-term fluctuations. However, long-term investments have the potential to generate returns that outpace average inflation, helping to protect your wealth for the future.

3. Revisit your financial plan

When prices are rising, your outgoings will likely increase. And if the real-terms value of your cash savings drop, you may find it more difficult to reach your financial goals.

So, now may be a good time to speak with your financial planner and revisit your plan.

You may want to consider your short- to medium-term goals and how much wealth you realistically need to hold in cash savings. If you can reduce the amount of cash you have and invest some of those funds, while still meeting short-term goals, you may not feel the effects of inflation quite so much.

Depending on your circumstances, you may need to rethink some of your long-term savings and investment goals as they could take longer to reach when your living expenses are higher.

Your financial planner can help you gain a clear picture of your plan and make any necessary adjustments to ensure you’re able to continue working towards your goals.

Get in touch

To find out more about how to make the most of your cash savings and protect your wealth from the erosive effects of inflation, please get in touch.

Email info@logicfinancialservices.co.uk, call 01491 612 754, or drop into the office.

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.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.