“Keeping money in cash may seem like a smart thing to do right now… But for anyone who doesn’t need to spend it in the short to medium term – the next five years or so – it’s potentially a huge missed opportunity. ” Morris said.
“Yes, interest rates on deposits are higher. But so are bond yields. And equity market valuations have fallen significantly over the past year, leaving some room for better expected returns.
In short, there are good reasons to expect investments in bonds and stocks to outperform cash, aside from the karmic hope that the cosmos will reward risk-taking over time,” he said.
Alice Haine of stockbroker Bestinvest said this was especially true for who can invest for yearssuch as parents setting up Junior Isa accounts for newborns.
“There is great potential for parents to start saving for a Junior Isa for a child from birth, with an annual allowance of £9,000. History shows that investments in the stock market generally outperform cash over an 18-year period.
“Even if a family puts just £100 a month into a Junior Isa, and assuming a return on investment of 6pc, the pot would be worth £38,929 by the time the child turns 18, whereas at an average savings rate of 2 .5 pc. worth £27,300,” she said.
While savings rates are currently highare predicted to fall.
Expectations of further interest rate hikes, which banks use to price savings deals, have fallen sharply this month.
However, saving cash still makes sense for people looking for a place to keep their cash short-term.
This includes those building up reserves for rainy days or saving for a house purchase within the next five years, who would be advised to avoid stock market risk.
Ms. Hain suggested splitting cash deposits between easy-to-access emergency accounts and fixed-rate deals, meaning your money is locked up for a year or more, to take advantage of the higher interest rates on offer.
“Those who have cash to invest but are unsure of what investments to make can fund their account with cash and earn interest as they take their time making an investment choice – even if it falls in the next tax year. is.
“This ensures that those who want to take advantage of this year’s allowance don’t miss out on this ‘use it or lose it’ allowance,” she added.