Why the UK is hoarding too much in cash – from a psychologist
The UK is obsessed with cash. Out of the 15 million adult ISA accounts that were in use in the 2023/24 tax year, almost 10 million were cash ISAs, making up around 66% of the total.
We love cash because it is simple and we know that when we need to access it, we won’t find that the value of our savings has fallen to zero. Put simply, cash is risk-free.
But that is not the whole truth, according to Andy Reed, head of behavioural economics research at Vanguard.
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Speaking to Kalpana Fitzpatrick, digital editor-in-chief , on the MoneyWeek Talks podcast, Reed said there is a significant opportunity cost in hoarding more of your savings in cash than you might need.
In the UK, there is over £200 billion of excess cash languishing around, research by Vanguard found.
This does not include savings that it may make sense to hold in cash, like what is needed for an emergency fund or short-term spending..
Reed said: “When you dig a bit deeper and start to ask ‘why are you sitting on the sidelines? Why are you not invested?’, they realise that there is a risk-return trade-off that they’re making and they tend to say they prefer a more conservative approach. They feel like cash is safer.”
Reed says this is partially a result of inertia.
“[Savers] are going with the flow. They’re maintaining the status quo. The status quo feels safe. It doesn’t feel risky. But what they don’t realise is that investing is risky, yes. But not investing is also risky.”
That is because every moment that your money is not growing, it is being eaten away by inflation.
This has been particularly true in recent years as the UK, and many other western countries, have had to deal with price growth above the 2% target.
In Britain, inflation reached a recent peak of 11% in 2022, while the latest data shows it reached 2.8% in May 2026.
As cash ‘stuffed under the mattress’ earns 0% interest, it will be worth less in real terms after years of inflation. But cash in savings accounts are not entirely safe either.
“The risk is that your cash is not going to keep up with inflation because the interest on cash can be very low while inflation might be higher and so your purchasing power is going down over time.
“But inflation is out of sight, out of mind for many people, so they don’t realise the hidden cost of cash.”
That is not to say that cash is inherently evil and all your savings should be diverted to investments.
Reed says: “Cash is a story of too much of a good thing. You need enough for emergencies, say your dishwasher breaks, or your car breaks down, you also arguably need cash in case of job loss.
“That’s where highly liquid assets like cash are super valuable because they give you that flexibility to withstand bumps in the road.
“But having cash above and beyond those short-term emergency needs means you’re incurring opportunity costs. What you’re giving up by not investing is quite a bit larger than what you might realise.”
Listen to MoneyWeek Talks for our full interview with Andy Reed, where he discussed how emotions can affect investor behaviour, the barriers to investment in the UK, how different generations invest, and much more.
You can watch the podcast on YouTube, or listen to it wherever you get your podcasts.
About the podcast
MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.
Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.
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