The fact is, savers in the UK rely far too heavily on cash. At the end of October 2015, half of all UK household financial wealth was held in cash. We have an astonishing £746bn sitting in savings accounts of various kinds, and it’s been earning less than 1% interest on average since 2009.

Half of that money is in instant access accounts earning just 0.39%. Cash savings will cost savers a staggering £10.6bn in lost income this year, based on our recent analysis of data from ONS, the Financial Conduct Authority and the Bank of England.

Although UK savers explicitly claim they think long term and want high returns, their saving behaviour is at odds with these objectives. Worryingly we are still keeping large amounts of cash in instant access accounts, and do not switch for years, believing attractive alternatives are too hard to find, and changing is too difficult. The penalties of this inertia mean savers are losing an alarming amount of money, both in foregone income, and as inflation eats away at our nest eggs.

Even with rock bottom interest rates, savers fail to look for better alternatives. One third of easy access savings, an astonishing £125bn, has languished in the same account for more than five years, typically earning far less than the interest rate on new easy access accounts.

To manage the ups and downs of daily life, it is pragmatic for UK households to keep about three months’ disposable income in cash accounts, and, say, an additional cash fund of £2,500 for emergencies. This would amount to an ‘appropriate’ cash savings amount of £299bn in the UK today of maximising their return on investment. That leaves £447bn saved in cash that is not meeting savers’ stated aims and objectives. If savings were invested in a mix of UK and international equities, savers could earn an additional £10.6bn in income every year in excess of the savings interest they are currently receiving.

British savers are naturally very conservative, falling back on cash savings because they perceive them to be safer, despite cash abjectly failing to meet their own stated longer term investment aims.  Whilst there is a risk of losing capital value when investing in equities, in general risk diminishes the longer the investment is held. Cash deceives investors with the illusion of safety.

Inflation has exceeded cash interest rates in 20 out of the last 25 years, and you are almost certain to see it lose value over time. I often let the figures do the talking: since 1990, UK equities have returned 699%, cash instant accounts on the other hand have returned 68.9%. Whilst since 1990, inflation of 122% has far outstripped the 69% return on instant access savings. So the question you should ask yourself is; am I stashing muppet money?

James de Sausmarez is director and head of investment trusts at Henderson Global Investors

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