Considerations on Cash

We all need to hold cash savings, however there is no fixed rule for how much this should be. Some clients like hold no more than £10,000 in savings, whereas for other clients is it £300,000+. Cash provides a sense of financial security, and this feeling is important to acknowledge as part of our work as financial advisers.

Savings Accounts

For short term needs and emergency funds – you need to hold accessible cash, so instant access to capital. The best instant access savings accounts are currently paying about 4.5%pa. Whether you will pay tax on interest will depend on your income and how much interest you receive. Banks and Building Societies now report interest payments to HMRC after the end of a tax year and your tax code may be amended to reflect the interest you have received.

For cash ISAs – all interest is received with no tax deducted and you can currently add £20,000pa to an ISA. Money added to an ISA in a previous tax year will remain in an ISA until removed. You have a new allowance every year and can open a new ISA with a new bank/building society each year. At present you can get around 4.5%pa interest on a cash ISA.

For additional savings, you can consider a fixed interest savings bond. These can be for 1-5 years and there are lots of options. Some useful places to check the rates are Moneyfacts and Money Supermarket.

For ethical options – Triodos Bank and Ecology Building Society score highly on their ethical credentials. As mutuals, building societies generally offer better rates than most of the main banks in the UK.

Protection for Cash Savings

For Cash savings, you are currently protected by the Financial Services Compensation Scheme (FSCS) for up to £85,000, in the event that your bank goes out of business. The £85,000 is per banking license so two companies operating under one license will only protect £85,000 even if it initially looks like two different banks. There has been quite a lot of consolidation of banks and building societies in recent years, so it is prudent to double check this. The Prudential Regulation Authority (PRA) which regulates banks has proposed to raise the deposit protection limit of the Financial Services Compensation Scheme (FSCS) from £85,000 to £110,000 from December 1st 2025.

In addition to the £85,000 protection, the FSCS also offers a Temporary High Balance Protection of £1m for up to 6 months for certain financial transactions such as selling your home or receiving an inheritance. There are a number of conditions to the protection and you can find more details on the FSCS website.

NS&I

NS&I offers a range of cash savings options. As NS&I is underwritten by the UK Government and has the backing of HM Treasury, it guarantees 100% of everything you hold via NS&I, with no upper limit, so it is a really useful place to hold a large cash balance for a period of time.

NS&I also offer Premium Bonds which many clients also hold. The maximum which can be saved into Premium Bonds is £50,000 per person. There is a monthly draw, and winnings are tax free and can either be paid out or added to your balance. The prize fund rate, as of April 2025, is effectively 3.8%pa.

Considerations on Cash

With interest rates slowly starting to fall, it is important to review your cash holdings and ensure you are making the most of the rates and options on offer. It is also worth noting that historically, inflation has eroded the cash value of savings which is also one of the reasons why people have invested their capital.

If you are uncertain about what your options are, you can always contact your adviser.  We are happy to help.