Cash held in bank or building society accounts is the most straightforward of investment options. Typically cash deposits are either held for a fixed term or on notice i.e. 90 days. If the money is required at shorter notice then generally some form of penalty is payable to access the money early.

Money held in a deposit or savings account generally pays interest at either a fixed or variable rate. A variable rate account may be tied to a benchmark rate, such as the Base Rate, and in this case movements of the rate are not entirely at the discretion of the bank or building society.

The key features of cash deposits are:

  • Capital protection, and

  • Accessibility

    The first point means that unless the bank or building society goes into bankruptcy, the initial amount of cash deposited will always be returned in full at the maturity of the deposit. In fact for retail investors in the UK there is a further guarantee in that the government will provide some protection even if the bank defaults, currently at 90% of the first £30,000.

    The second point means that if the account is no-notice then the money can be accessed at any time without penalty and so can be available if required at short notice.

    The high level of protection and accessibility of cash however means that the return generated is generally only slightly above the rate of inflation. In fact for higher rate tax payers the after tax return can even be below inflation if interest rates are sufficiently low.

    Nevertheless maintaining a certain proportion of ones wealth in cash is often seen as a sensible approach.