Are you holding cash in an instant access account? As most instant access accounts offer relatively low rates of interest, cash held in low-interest accounts may lose purchasing power over time if the interest earned is lower than inflation. That’s because the Consumer Prices Index (a measure of inflation) is currently at 2.9% - meaning money held in cash may buy less in the future than it does today.
Before considering investment options, it is worth reviewing whether your existing cash could be earning a higher rate in fixed-term deposits, notice accounts or Cash ISAs. Money needed within the next five years is often better held in cash or lower-risk assets, as investment values can be volatile over shorter periods. Cash does, of course, play an important role in any financial plan. It provides security, liquidity and a readily available emergency fund. However, for those who can afford to take a longer-term view, there may be alternatives worth considering that could offer the potential for higher returns over time, although investments can fall in value and returns are not guaranteed.
1. Gilts
Gilts are bonds issued by the UK Government and are generally considered to be among the lower-risk investments available to UK investors.
When you buy a gilt, you are effectively lending money to the Government in return for regular interest payments and the return of capital at maturity (i.e., the date on which the bond ends), provided the issuer remains able to meet its obligations. Certain gilts may also offer tax advantages depending on individual circumstances.
2. Stocks and Shares ISAs
For money that is unlikely to be needed in the short term, a Stocks and Shares ISA could offer the potential for higher returns than cash over the long run. UK investors can invest up to £20,000 into Stocks and Shares ISA in the 2026/27 tax year.
Unlike a Cash ISA, the money is invested in assets such as equities (company shares), bonds or funds, meaning values can rise and fall. However, investors benefit from tax-free income and capital gains, making ISAs one of the most widely used tax-efficient investment wrappers available in the UK.
For those with a long investment horizon, the combination of tax efficiency and growth potential can make a Stocks and Shares ISA an attractive home for surplus cash.
3. Investment funds
Investment funds, such as JM Finn’s Investment Management Service, allow investors to pool their money with others and gain access to a diversified portfolio managed by professional investors.
A fund may invest across different regions, sectors and asset classes, helping to spread risk more effectively than holding a small number of individual investments.
For many people, funds provide a straightforward way to access stock markets without needing to make day-to-day investment decisions themselves. They can also accommodate a range of risk profiles, from cautious investors through to those seeking higher levels of growth.
4. A bespoke investment portfolio
Some investors require a more tailored approach. This can be particularly useful for individuals with more complex financial circumstances, such as capital gains tax considerations.
A tailored portfolio, such as JM Finn’s Wealth Management Service involves appointing an investment manager to invest in line with agreed objectives and risk parameters.
A bespoke portfolio can hold a broad range of investments, including shares, bonds, funds and other assets, allowing an investment manager to make day-to-day investment decisions within the agreed mandate and risk parameters.
5. Premium bonds
Premium bonds remain a popular choice among UK savers. Backed by the Government through National Savings & Investments (NS&I), they offer the chance to win tax-free prizes each month while maintaining access to your capital.
Although there is no guaranteed return, the security of government backing makes premium bonds an option for those who want an alternative to a standard savings account.
They can be particularly appealing to higher-rate taxpayers who have already used their Personal Savings Allowance (the amount of interest you can earn tax free each year – currently £500 for higher rate taxpayers), because all premium bond prizes are free from UK income tax and capital gains tax.
The right mix will be different for everyone
There is no single alternative to cash that suits every investor. The appropriate balance will depend on factors such as your objectives, time horizon, attitude to risk and need for access to capital.
Holding some cash for short-term needs while investing longer-term money into options with the potential for higher returns can help create a more balanced financial strategy.
To speak to us about getting started with investing, contact us at info@jmfinn.com or fill in the contact form on the website.
The value of securities and the income from them can fall as well as rise. Past performance should not be seen as an indicator of future returns. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
