is cash always king? By The simple answer here is no, but the reality and reasoning is much more nuanced than this. There is no denying that having cash readily available is a must have in life. In the event of an emergency, you will want to be able to access money fast. With this is mind, it can be tempting to squirrel away as much cash as you can. But there really is such a thing as too much cash. And here’s why…. While there are rumours of change at the Old Lady where interest rates are concerned, the best instant cash rates are still currently less than 1%. (0.61% the last time I looked). Compare this to the current rising rate of inflation and you’ll quickly see why the purchasing power of your cash will be on the way down. The three types of inflation have different rates, but all well exceed the 1% mark. The Retail Price Index, which includes mortgage payments and which is largely influenced by house prices and interest rates, stands at 3.9% - six times the best instant access interest rate we found.
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Kunle
The Consumer Price Index takes no account of housing costs and just factors in all the other goods and services and stands at 2.5%. Meanwhile, the Consumer Price Index does include housing costs, but uses an approach called “rental equivalence”, essentially calculating how much rent a tenant would pay for an equivalent property. This one is the lowest at 2.4%. Whichever way you look at it, your cash will not hold its value in an instant access account, meaning that if you keep too much cash aside, you won’t just be losing out on investment opportunities, you will actually be losing serious money. So how much cash should you hold? The amount of course depends on your own situation but as a rule of thumb, we recommend a minimum of six months total expenditure.
