In the past, cash savings were seen as a ‘safe haven’.
The expression ‘Cash is King’ tells us that cash in the form of money or savings is more valuable than any other investment asset, but in an ongoing low interest rate environment, cash can no longer be considered king.
In certain historical market conditions this idea made sense; when the price of riskier assets such as shares was judged to be too high or prices became too volatile, investors could earn a reasonable return on cash instead.
In uncertain times, depositing cash in a savings account could appear to be the safest option for your money. However, in the ongoing era of low interest rates, income from cash savings is minimal. At the same time, inflation gradually eats away at the real value of your cash.
The result is that even with relatively low levels of inflation, money held in cash or deposited in a savings account is likely to be worth less as the months and years pass.
Over the past five years the European Central bank [ECB] has cut interest rates into negative territory to a low of -0.5%, while the official measure of Irish inflation has varied from -0.30% to 0.80%.
Instead of lying idle and losing its real value over time, your money could be put to work by being invested in assets such as company equities [shares] or fixed income products such as government or corporate bonds.
Depending upon your investment aims, you may still choose to hold a certain amount of your capital as cash, since this can be a way of diversifying and managing risk. But for the most part, cash should be your servant and not you master.
Your financial broker will be able to advise you on the right approach for you. Remember that low interest rates mean the return on cash savings is minimal. Inflation means cash can actually lose value over time. Cash deposited in a bank could be working harder for you in markets.