For much of the past year, savers have been bracing for falling interest rates. That picture has shifted. The Bank of England held the Bank Rate at 3.75% on 17 September, but three of the nine members of its Monetary Policy Committee voted for an increase. Savings providers have been responding fixed savings and ISA rates continued to rise through September, with longer-term rates at their highest level in over two years.
Yet higher headline rates tell only part of the story. Inflation rose to 3.1% in August, and two significant changes to the way savings are taxed take effect next April. For anyone holding a meaningful sum in cash, this may be a good moment to pause and take stock. The five questions below offer a thoughtful place to begin.
1. How much cash do you need to hold?
Cash plays a valuable role in any financial plan. It provides a cushion for the unexpected and a source of reassurance that no investment can quite replicate. A commonly cited starting point is three to six months of essential spending, though the right figure varies considerably. It depends on how secure your income feels, whether you have dependants, and any larger costs you can see on the horizon. Some people choose to hold more for their own peace of mind, and that is a perfectly reasonable choice. The question is simply whether the amount you hold reflects a considered decision rather than an accumulation over time.
It is also worth remembering that eligible deposits are protected by the Financial Services Compensation Scheme up to £120,000 per person, per banking licence. For larger sums held with a single institution, this may be worth checking.
2. Is your cash keeping pace with inflation?
This is perhaps the quietest risk savers face. With inflation at 3.1% in August, the Bank of England expects it to rise to around 3.75% in the final quarter of this year and slightly above 4% early in 2027. Any savings account paying less than the rate of inflation will gradually lose purchasing power, even as the balance appears to grow.
Rates can vary considerably between providers, and long-standing accounts with established banks do not always keep pace with newer offers. A periodic review of where your cash is held, and on what terms, can make a real difference over time.
3. Could tax take a larger share of your interest?
Most people can earn some interest tax-free through the Personal Savings Allowance: £1,000 a year for basic-rate taxpayers and £500 for higher-rate taxpayers, while additional-rate taxpayers receive no allowance. As rates have risen, more savers are finding their interest exceeds these limits.
From April 2027, that will matter a little more. The Autumn Budget 2025 confirmed that tax on savings income will rise by two percentage points from 6 April 2027, to 22%, 42% and 47% depending on the band your interest falls into. Separate changes to the way allowances are applied may also mean some savers who currently pay no tax on their interest begin to do so. How much this affects you will depend on your wider income and circumstances.
4. Are you making the most of your ISA allowance while it lasts?
Interest earned within a Cash ISA is free of tax, which makes ISAs especially valuable as savings taxes rise. Here, too, change is coming. From 6 April 2027, savers under 65 will be able to place no more than £12,000 a year into a Cash ISA. The overall allowance remains £20,000, with the remainder available for other types of ISA, such as a Stocks and Shares ISA. Those aged 65 and over will keep the full £20,000 Cash ISA limit.
For now, the full £20,000 Cash ISA allowance remains available for the 2026/27 tax year, and existing ISA balances keep their tax-free status. For some savers, this tax year may represent a particularly worthwhile opportunity.
5. Is some of your cash better suited to longer-term investment?
Cash is well suited to money you may need in the next few years. For money set aside for the longer term, however, it has historically struggled to outpace inflation over extended periods. Investing brings the potential for greater growth, alongside the reality that values can fall as well as rise. It may therefore suit only money you are comfortable leaving untouched for at least five years. Our article, Why You Should Invest in an ISA, explores how a Stocks and Shares ISA might fit alongside your cash savings.
Finding the right balance between cash and investments is a very personal decision, shaped by your goals, your timescales and your comfort with risk. If you would like to talk it through, we would be delighted to help.
This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances. Tax treatment depends on individual circumstances and may be subject to change in the future. The value of investments can fall as well as rise, and you may get back less than you invest.