5 days ago
What cash effectively gives us is the freedom to lose money
Illustration by Charlotte Trounce
On a quiet high street in Devon, outside a boarded-up M&S, I stopped to speak to two men who had obviously spent some time going down certain digital rabbit-holes. One was stood in front of a hand-made flag that declared: 'CO2 is the gas of life, stop net zero.' The other was stood in front of a bigger, printed banner from which a huge pair of reptilian eyes, surrounded by ones and zeroes, peered out. 'Cash is freedom,' declared this banner. The man in front of it informed me that he was there to warn the public about the dangers of central-bank digital currencies.
Both men were to a great extent right. Carbon dioxide is the gas of life, if you're a plant or an animal that relies on plants, which we all do. If net zero was a plan to remove all CO2 from the atmosphere, that would be terrible, but it isn't. My attempt to explain this immediately marked me out as an agent of the Deep State, so I turned quickly to the other banner. I also agreed with this one. Central-bank digital currencies – the idea of a digital 'Britcoin'– are not a great idea, in my opinion. And it is true that cash is freedom, in that one of the more important things to do with your personal finances is to hold a cash buffer. The ONS says that 29 per cent of UK adults would not be able to meet an unexpected expense of £850, which means nearly a third of adults are one piece of bad luck away from going into potentially problematic debt.
A savings account with enough to cover three months of bills could make a huge difference if you need it. If you haven't done this already, one of the best places to start is in a 'regular savings' account. High-street banks offer these as a kind of bribe: take out a current account and you can also pay up to £400 a month into an account that will pay out six or seven per cent interest at the end of the year (so you might get about £150 in interest). There are strong incentives to save: the fact that you can only pay in a certain amount every month, as well as the high interest rate for what you build up.
Beyond the emergency pot, however, cash costs you money. In April, British savers paid into cash ISAs at the highest rate on record, collectively saving £14bn in a single month. But this is not as prudent as it seems. Duncan Lamont, head of strategic research at Schroders, recently calculated the money that British savers have lost by putting their funds into cash ISAs rather than making investments we might think of as having more risk, such as company shares. His conclusion is brutal. Between 2013 and 2023, British people put £436bn into cash ISAs. Earning the average interest rate on an instant-access cash ISA, that pile would now have grown to £479bn. Invested in an index of company shares from around the world, it would have grown to more than £1trn. Lamont estimates UK savers may have missed out on as much as £541bn in returns over a ten-year period. That would have produced higher spending, more investment in British companies, more jobs, more growth. This is a risk we don't talk about enough with regard to money – the risk of doing nothing.
Many people save into an ISA because it's 'tax free', which sounds great, but the tax on your savings income is not as important as the income itself. For many ISA holders, especially younger people with small amounts of money built up, there is no tax benefit at all (the first £1,000 of saving interest is already tax free if you're a basic-rate taxpayer).
Rachel Reeves has said that while she wants to keep the £20,000-a-year allowance for the amount people can save in an ISA, she wants to push people towards stocks and shares ISAs rather than holding cash. There is a good chance she will make this part of her autumn Budget, and the potential rewards are significant. But cash has become a culture-war issue. There is no guarantee that a sensible policy will be enough to convince the banner blokes.
[See also: Can John Healey really afford to go to war?]
Subscribe to The New Statesman today from only £8.99 per month Subscribe
Related
This article appears in the 04 Jun 2025 issue of the New Statesman, The Housing Trap
