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How much cash should you keep in your current and savings accounts?

Thanks to the ongoing inflationary and cost of living pressures in the marketplace, the average Brit is finding themselves with less and less in their current accounts. This has a negative effect on your capital because ,while the money left idle in the account retains its nominal value, due to inflation it allows us to buy fewer goods compared to previous years. So then, how much money should you keep in your current account?

There is no definitive answer as there are numerous variables and considerations to take into account. What can be said is that, as a general rule, you should keep a sum of money in cash that is sufficient to cover daily expenses and potential needs for at least the next three months. For example, if your mortgage payment is £700 and you have monthly expenses of £400, it means you should keep around £3,500 in your account. This is, of course, an approximate calculation that doesn’t take into account many variables, but the basic concept remains to keep only the necessary amount in your current account and invest the rest of your capital.

Of course, if you have a large family with dependent children or if you have high monthly expenses for various reasons, it may be difficult to keep the average balance below £5,000. 

Studies by Finder have shown that the average Brit still has over £7,500 held in savings accounts. However, despite this being the national average, many more millions have nothing in savings whatsoever, or have less than £1,000, according to research – accounting for more than 34% of the UK population as of 2023.

This makes it even more imperative to have a healthy current account balance to mitigate against potential short-term risks, or to put your savings to better use elsewhere, to help you get the most from your capital in the medium term.

Once you understand your spending needs, it’s important to invest your remaining liquidity into funds which produce higher rates of return than those offered by high street banks and other institutions, while taking into account your financial goals, time horizon, and risk tolerance.

For managing short-term liquidity with limited risk, one option to consider is Moneyfarm Liquidity+. It invests in a portfolio of a selection of money market funds, with a gross annualised yield currently above 5.3%* and a management fee of 0.3%, in addition to the underlying funds’ cost of 0.1%. 


*Based on the weighted average of the gross yields regularly published by the money markets funds held in Liquidity+, as of  17 November, 2023.

Returns are sensitive to the Bank of England’s deposit rate fluctuations, with lower rates leading to lower yields and higher rates leading to higher yields.

Money market funds can be a great way to save for short-term goals. You can also capitalise on higher yields driven by the recent rate hikes.

As with all investing, your capital is at risk. Even though it’s a low-risk investment, this isn’t a cash product and there’s still a chance the value of your investments could fall and you might get less than you invested.

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.