Volatility in the financial markets over the past few years has seen many hunkering down and keeping their money in the supposedly “safe” form of cash.

But with the Bank of England keeping interest rates at record lows of 0.5%, money on deposit is garnering meagre returns for savers.

Add to this rising inflation – UK CPI inflation rose from 2.4% to 2.7% in May, erasing the drop to 2.4% seen the previous month –, which erodes spending power, and the future of holding cash looks bleak.

Recent research by retirement specialist MGM Advantage suggests 360,000 people retiring each year could find their combined spending power fall by £6.3bn over a 25-year retirement due to the effects of inflation alone.

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So should you be relinquishing your grasp on cash investments?

Altior Vita financial planner James Brooke is not so sure.

“Money on deposit in cash has an important part to play in financial planning and it is appropriate to hold a suitable amount of money this way even though in real terms it is losing money even when the interest earned is included in the calculation,” he said.

However, most financial advisers are witnessing an increasing number of client conversations about what to do now cash is no longer king.

“We have found that, over the last three months, more clients are looking to move out of cash and are prepared to look at other options including investing, which they may have been nervous of in the past,” Beaufort Asset Management financial planner Andrew Elson said.

“Often they have had fixed rate bonds mature that were paying 3% to 4% but are now being offered about 1.5% so, out of desperation to achieve something better, they are looking to invest in risk products, for example equities, especially when they read how well markets have done in the last 18 months or so.”

Raymond James Investment Services financial planner, Daniel Thompson, has also witnessed a desire among clients to move out of cash – though it is not always expressed that way.

“The majority don’t necessarily come through the door asking to specifically move out of cash or ask to be switched into an alternative asset class.

 “We are seeing individuals forced into searching for better alternatives and this has led to an increase in the need for guidance, especially for individuals with excess levels of capital in their savings accounts.”

Thompson said he finds a big misconception is the belief among many investors that staying in cash investments such as savings accounts and cash ISAs will keep their capital stable.

“Even for those of our clients that are in retirement, there could be a decade of life to fund and the only way they will be able to cover this shortfall is through capital appreciation and a sufficient income. Realistically this will not be achieved through cash.”

Thompson uses the example of house prices to demonstrate to clients how much they stand to lose by staying in cash.

“Thirty years ago the average UK house price was £25,000. Today that figure stands at £165,000. Can you afford to lose that amount of money by leaving your funds in cash investments? This is what we call the risk of doing nothing!”

McParland & Partners owner Sean McParland said he has been seeing clients want to move from cash for over a year now, however he points to a potential bright spot for those who are keen to stay in sterling.

“Deposit rates have noticeably fallen in the last three months, however the balance sheet weaknesses of major banks may lead to some offering more reasonable deposit rates in the near future.”

Sanlam UK head of Investment Solutions Rick Eling said he has seen more clients seeking to transfer cash into riskier assets since January, as part of an overall increase in risk appetite, which has also seen some requests to increase equity exposures in existing portfolios.

However he is cautious about blanket moves: “Our concern is that this is a short term ‘gut’ response to the recent strong performance of stock markets.

“We would advise investors to only increase their risk levels if they really need to, and if they can remain invested at those higher levels should the markets fall.”

Keeping a reasonable level of cash for everyday and emergency living in addition to protection against further volatility is prudent.