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What are cash investments?

Cash investments are designed to protect your money while offering a fixed or variable interest rate. Most people have cash investments in the form of deposit accounts that pay a regular interest and enable you to access your money at short notice. They are one of the safest forms of investment; however the buying power of your money could be eroded by the effects of inflation.

Types of cash investments

In addition to bank and building society deposit accounts, cash investments include National Savings accounts and Certificates of Deposit and Treasury Bills. These investments are generally used by banks and other institutions to raise short-term finance or to deposit short-term funds.

The role of cash in a portfolio

Although returns are generally lower cash works well as part of a diversified portfolio as it can offset the volatility of other asset classes such as shares therefore reducing the overall risk of your portfolio.

Benefits

• Low risk
• Competitive interest rates
• High level of security
• Capital Guarantee
• Transparent

Drawbacks

• Low returns
• No capital growth
• Buying power can be eroded by inflation
• Open to default risk

 

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