Economic uncertainty isn’t abating – not anytime soon, at least. Household budgets are being squeezed too as borrowing costs rise and inflation stays elevated.

Not only is the need to manage your finances more carefully growing, so is the competition for every pound that you earn.

The good news is that cash savings rates are the most attractive they have been in decades. This is positive news for your emergency cash savings – that pot of money we should all have to cushion the blow when we’re hit by one of life’s unexpected setbacks.

But beyond three-to-six months of rainy-day cover, having too much of your money in cash could potentially hold back your future wealth. This is because, if history is any guide, you should get more from investing over the long-term (more on this below).

There’s another consideration: to what extent can you rely on higher savings rates? After all, it’s not as if banks and building societies are passing on all of the Bank of England’s interest rate rises. The most attractive savings rates on the market also tend to require you to lock in your money for a period or limit your withdrawals. And at some point, they will turn south too.

Even so, faced with higher cash savings rates, you may be tempted to question the relative merits of investing. Is cash now a better place for my money?

1. Consider your long-term interests

It’s an understandable question. It’s certainly true that the amount of emergency cash cover you might need should be reviewed if your outgoings, including any mortgage costs, are rising or set to rise. I’ve recently written about this, for example here.

However, it’s also important to consider things holistically. This is because in addition to the here and now, there are the future goals your investments aim to support.

Cash may look attractive but bonds and, especially, shares have a better long-term record when it comes to outpacing inflation, as the table shows below.


Past performance is not a reliable indicator of future results.

Notes: Data cover 31 December 1900 to 31 December 2022. Returns are in British pounds. Nominal value is the return before adjustment for inflation with dividends and income reinvested; real value includes the effect of inflation. *UK Treasury bills are used here as a proxy for cash.

Source: Vanguard, using Dimson-Marsh-Staunton global returns data from Morningstar, Inc. (the DMS UK Equity Index, DMS UK Bond Index, DMS World Bill Index).

2. Timing the market is hard

Long periods out of the market can worsen matters by increasing your chances of underperforming.

That’s reinforced by the diagram below, which shows what the impact would have been for a 60:40 portfolio of global shares and bonds if it had been moved into cash for three months, six months or 12 months, in response to a market setback. Cash often looks attractive but knowing when to buy back in is hard.

The importance of staying in the market

The importance of staying in the market

Past performance is not a reliable indicator of future results.

Notes: The chart shows the distribution of excess returns of cash over a global 60% share/40% bond portfolio in a 1-, 3-, 6-, and 12-month period after 3-month total returns of global shares were below 5%. Global shares represented by the MSCI AC World Total Return Index. Hedged global bonds represented by the Bloomberg Global Aggregate Bond Index Sterling Hedged index. Cash is represented by sterling 3-month deposit rates.

Source: Vanguard calculations in British pounds, based on data from Refinitiv. Data is based on the period between 31 January 1990 and 31 March 2023.

3. Improved long-term outlook

Rapid increases in interest rates can lead to significant market repricing, which can be painful for investors. But the upside is that they set the stage for stronger expected returns going forward.

That’s illustrated by the chart below, which shows how Vanguard’s long-term market projections have improved in British-pound terms due to the weak performance of shares and bonds in 2022. In other words, how falling share-price valuations and rising bond yields (falling bond prices) have boosted our expectations for 10-year annualised returns.

These projections, which are derived from our in-house Vanguard Capital Markets Model1, are hypothetical – there is no guarantee of them happening. They are nonetheless encouraging for investors.

10-year annualised return forecasts for global bond and stock markets2

10-year annualised return forecasts for global bond and stock markets2

IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model (VCMM) regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from the VCMM are derived from 10,000 simulations for each modeled asset class. Simulations are as at 31 December 2021; 31 December 2022; and 31 May 2023. Results from the model may vary with each use and over time.

Source: Vanguard.

Markets will likely remain volatile in 2023 even after interest rates finally peak. This is because rate changes take a year or more to fully work their way through the economy. But investors can position themselves for investment success over the long term by thinking strategically and building a portfolio that capitalises on the improved outlook.

It’s more reason to stay the course with an investment built around your goals and underpinned by regular and committed investing. So use it as a framework for thinking about your needs and interests – not just in the here and now, or even this year, but also in the years and decades ahead.

Your future self will thank you for it.


1 The Vanguard Capital Markets Model (VCMM) is a proprietary model that analyses historical data and simulates thousands of projections using a series of forward-looking assumptions and indicators to generate 10-year annualised forecasts for returns from shares and bonds. 

2 Chart figures are based on a 2-point range around the 50th percentile of the distribution of return outcomes for shares and a 1-point range around the 50th percentile for bonds. Indices used in VCMM calculations: UK shares: Bloomberg Equity Gilt Study from 1900 to 1964, Thomson Reuters Datastream UK Market Index from 1965 to 1969; MSCI UK thereafter; global ex-UK equities: S&P 90 Index from January 1926 to 3 March 1957; S&P 500 Index from 4 March 1957 to 1969; MSCI World ex-UK Index from 1970 to 1987; MSCI AC World ex-UK thereafter; UK aggregate bonds: Bloomberg Sterling Aggregate Bond Index; Global ex-UK bonds: Standard & Poor’s High Grade Corporate Index from 1926 to 1968, Citigroup High Grade Index from 1969 to 1972, Lehman Brothers US Long Credit AA Index from 1973 to 1975, Bloomberg US Aggregate Bond Index from 1976 to 1990, Bloomberg Global Aggregate Index from 1990 to 2001; Bloomberg Global Aggregate ex GBP Index thereafter.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Important information

This article is designed for use by, and is directed only at, persons resident in the UK.

The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. 

The information in this article does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.

If you have any questions related to your investment decision or the suitability or appropriateness for you of the product(s) described in this document, please contact your financial adviser.

Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.

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