If a stock market crash is a head-on collision, then inflation is a slow puncture. Yet both can cause things to break down and can be just as damaging to your money.
Last year alone, UK savers saw around £17.6 billion wiped off the real value of their cash savings once inflation was accounted for, according to Fidelity analysis.
The loss wouldn’t have been immediately noticeable on bank statements. It happened gradually, as prices rose faster than the interest most people were earning on their savings.
Why cash lost value in 2025
At the end of last year, UK inflation stood at 3.4%, well above the Bank of England’s 2% target.1 Over the same period, the average interest rate paid on easy‑access savings accounts was just under 2%, according to Bank of England data.2 This means many savers were effectively going backwards in real terms.
Even though fixed‑rate savings paid more on average (3.56%), easy‑access accounts remain the most popular home for cash.3
With UK households holding roughly £1.88 trillion in cash deposits,4 the gap between inflation and savings rates added up to a substantial collective loss over the year.
Assuming 70% of household savings were held in easy-access accounts and 30% in fixed-rate products, our analysis shows the real value of cash savings fell by around £17.6bn over 2025.
Put simply: if the interest on your savings doesn’t keep pace with rising prices, your money buys less over time – even if the balance on your account looks higher.
How investments performed in 2025
By contrast, stock markets delivered a strong reminder of why many people choose to invest for the long term. In 2025, global equity markets performed well, with the MSCI World Index delivering a total return of around 13% in sterling terms.5
Fidelity estimates that if just a quarter of UK household cash savings had been invested instead of left in cash, the real value of that money could have increased by around £44 billion, even after accounting for inflation.
While this kind of return won’t happen every year, it highlights the opportunity cost of holding large amounts of cash when inflation is high. Over time, investing gives money the potential to grow faster than prices rise, rather than gradually losing purchasing power.
The hidden risk of holding too much cash
Cash plays an important role in most financial plans. It provides security, flexibility and peace of mind. Many people sensibly keep three to six months’ worth of essential spending in cash as an emergency buffer, and retirees often hold more to cover short‑term needs.
The problem arises when large sums sit in cash for long periods with no plan.
Fidelity research shows that, historically, cash has struggled to protect against inflation over the long term.
Looking at every rolling 10‑year period since the late 1980s, UK equities beat inflation around 95% of the time, compared with just over half of the time for cash.6 While markets can be volatile in the short term, this highlights the long‑term risk of relying on cash alone.
What could savers do differently?
There’s no single answer that suits everyone, but there are practical steps savers can consider to reduce the risk of inflation quietly eating away at their money:
1. Make sure your cash is working hard
Check the interest rates on your savings regularly. Many easy‑access accounts pay far less than the best rates available, and switching can make a meaningful difference over time.
2. Be clear what each pot of money is for
Short‑term needs and emergency funds belong in cash. However, you may be able to take more risk with money you don’t expect to need for five years or more. This comes with the potential for higher returns that can help to offset inflation.
3. Consider investing for the long term
Investments can go down as well as up, but over longer periods they have historically offered a better chance of beating inflation than cash. Even modest amounts invested regularly can make a difference.
4. Spread your risk
You don’t need to choose between ‘all cash’ or ‘all invested’. A mix of cash, bonds and equities can help balance stability and growth, depending on your goals and time horizon.
5. Review your plan as life changes
Inflation, interest rates and personal circumstances all change. Revisiting your savings and investments from time to time helps to ensure your money is still aligned with your needs.
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