Are Low Interest Returns, leaking your buying power ?

In the UK today, cash is no longer considered king because inflation steadily reduces its purchasing power.  However a contingency or emergency fund is always a necessity to be kept in deposit based accessible form. 

When money is kept as physical cash or left in a low-interest current account, it rarely grows above inflation. Meanwhile, prices of everyday goods and services—food, energy, transport, and housing—often rise year after year. This increase in prices, measured by the Consumer Prices Index (CPI) and tracked by the Office for National Statistics, means that the same £10 buys less over time.

For example, if inflation runs at 4% per year, something that costs £100 today would cost £104 next year. If your cash savings earn little or no interest, your money effectively loses value in real terms. Over several years, this erosion compounds, quietly shrinking the buying power of your savings. Even when wages increase, they may not keep pace with rising prices, leaving households feeling financially stretched.

The Bank of England attempts to manage inflation through interest rates, but periods of higher inflation can still occur due to global supply shocks, energy price spikes, or economic disruptions. During such times, holding large amounts of cash can be particularly damaging to long-term wealth.

At Southcote we offer advice to invest in assets that offer the opportunity of returns above inflation. Unlike idle savings accounts, these options provide the potential to grow purchasing power over time.