Do You Have Too Much Cash?

by Adam on April 7, 2010

It’s important to work towards have plenty of pennies saved. Doing so will give you options and give even your most ambitious dreams a chance to develop. Even if you haven’t been reading Magical Penny from the start, you know this!

But it can be hard in two ways:

  1. It can be hard working out how to live on less than your income and putting money away consistently in a savings account. Budgets and goals can help immensely but eventually you simply have to learn how to do it like second nature.
  2. Once you have built up your savings a bit, it can be hard making sure you don’t spend them again! Even when you feel first-hand how empowering it is to have pennies saved for emergencies and opportunities, you may come close to justifying spending all your savings away. I have!

However, like anything that you do deliberately over time, you’ll get better at it. Better at putting money away; better at staying focused; better at achieving savings goals. You may not think it but you could soon start developing a new problem: Having too much cash!

Cash is King?

As your pennies grow slowly over time you may find yourself, in a surprisingly short period of time, with several thousands sitting in a savings account –preferably an ISA if you’re in the UK.  After working so hard to save and keeping those savings untouched it’s only natural to want to see a return on your money. But even if you’re monitoring the interest rates and making ISA transfers every so often, the interest rate on your savings account ultimately is not that important, because cash is cash : a safe, liquid  (immediately accessable) low return investment. That’s why you should be saving cash: for your short and medium term needs!

A Good Problem to Have?

When you’re first begin growing your pennies, building up cash reserves is the best thing you can do. But if you want to grow your pennies long term, cash will not grow in value: even with interest your hard-earned money will largely lose value to inflation: Having too much cash may seem like a good problem to have but it’s really not.

It Can Happen to Anyone!

Many people may find themselves with this problem if they religiously take advantage of the cash ISA limits each year. It might seem like a good idea at first but if you’re not making a return on your money and you’re not spending it either, then huge potential growth is missed. Current ISA rules recognise that cash is not the best vehicle for long-term saving: You can only save half the total yearly allowance in cash: the rest must be in other assets like stocks and shares. You can also easily transfer any cash in an ISA to stocks and shares (although not back to cash again).

Is Cash Over-Loved?

I was prompted to write about the tyranny of cash after reading the findings of the recent study by Clydesdale and Yorkshire Banks  75% of respondents were in favour of a change to the ISA rules to allow savers to invest up to the full ISA allowance in cash alone. If this happened it would allow savers in the UK to save over £10,000 in cash every year instead of the current allowance of £5100 tax free cash saving.

Read the full article here.

Whilst raising tax-free saving limits would be great in itself I think the findings of the study demonstrate that many people are intimidated by other asset classes like stocks and shares – ignorant of the huge potential of other asset classes to grow in value while cash reserves stagnate with every passing day. Cash still has its place: it’s great for its flexibility but leaving it in its current form, rather than investing it in other asset classes can be the difference, over 40 years,  between having a few thousand pounds and having millions.

We’re Only Just Beginning!

If you’re reading this and you’re in your 20s and 30s it’s unlikely you have the  problem of too much cash at this point in your lives. Keep at it. So whilst it is possible to have too much cash when saving long-term, it doesn’t hurt to save as much as you can first before putting it to work!

And Magical Penny is here to show you how to do exactly that: now that we’ve been through the basics we’ll begin moving towards the subject of investing and the opportunities available in the stock market –allowing you to put your pennies to work.

As the survey showed, for many, stocks and shares are intimidating but hopefully in the coming weeks you’ll begin to understand that rather than representing too much risk, asset classes other than cash offer a huge opportunity to grow your pennies over the long-term.

I’m pleased to have you along for the ride. 🙂

{ 4 comments… read them below or add one }

The Other Adam

I’m glad you’re finally getting round to talking about stocks and shares. I find them a bit terrifying and overly complicated at the moment, and I need someone to break it down and spoon feed me it in simple chunks!!

Great post again, keep them coming!

Rightly Knightly

I also am glad you’re finally wandering into this territory. I’ve never investigated stocks and shares fully and i’d be interested to read fine detail on how you go about it.

Do you just have a stocks and shares ISA? Do you invest in stocks and shares another way, perhaps more directly?

Personally I just feel swamped by the multitude of ways to invest money in stocks and shares and feel like the best thing for me to do is not try at the moment, for fear that investing can ‘lead to your money falling in value as well as rising’.


@The other Adam. You’re welcome Adam -can’t wait to break it down. I want there to be a place on the web where people can learn from scratch to mastery. Just want to get the pace right and not go too fast.

@Spencer -thanks for commenting and good luck on your goals. I think you’ll find it really helpful in your journey if you make sure you keep thinking: “how am I helping people”. if you’re helping enough, you’ll never have to worry about being ‘rich’ as your life already will be 🙂

@Rightly Knightly. I’ll be going through this in more detail, but yes I have a stocks and shares ISA -I think its the best way to do it with the most control and lowest fees -it also makes sense if you are currently in a low tax bracket but have expectations to hit higher tax brackets in the future.
Stocks do rise and fall but represent on value-creating entities so their value goes up over time.


Agreed. I’m in my late 20’s and put money into 4 funds via an ISA each month (equally split). I don’t plan to touch this money for at least 10 years and it’s great to see it growing. It can be daunting to know what funds to invest in but you can check the fund managers performance and whilst past performance is no indicator of future there’s still a good chance that a good past 5 years means the next 5 will do alright too in my opinion. I quite like what would be considered riskier funds such as emerging market funds as this is where the growth is! And I don’t see them actually as that risky… In any case the returns make them worth it – just compare the past 5 years of UK funds versus emerging market funds; whilst more volatility, the difference in returns is huge.

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