New research has uncovered a costly financial habit that is secretly draining the savings of millions across the UK. A study from the Nottingham Building Society reveals that keeping physical cash stored at home, rather than in a savings account, is causing people to lose significant sums each year.
The Scale of the Problem
The findings show that approximately seven million people in the UK maintain a cash reserve in their homes. Contrary to popular belief, this trend is particularly prevalent among younger generations. The research indicates that 18 percent of 18-24 year olds and nearly a fifth of 25-34 year olds keep savings at home. This compares to just 10 percent of those aged over 60.
Harriet Guevara, chief savings officer at Nottingham Building Society, commented on the motivations behind this behaviour. "Despite the shift to digital banking, many people still like the sense of control and tangibility that comes from holding cash," she said. "For younger adults in particular, social media budgeting trends such as cash stuffing – where you divide money into labelled envelopes for different spending categories - have played a significant role as they can feel more disciplined and 'real' than using an app."
The Silent Erosion of Your Savings
Ms Guevara issued a stark warning about the long-term impact of this practice. "You don't see it happening, but inflation quietly chips away at the real value of any cash kept at home," she explained. Using the latest inflation rate of 3.6 percent, she illustrated the tangible losses.
£1,000 kept in cash loses around £36 in spending power over a year, diminishing its real value to just £964. The effect is magnified with larger sums: £5,000 loses £180, and £10,000 loses a substantial £360 simply by being stored in a drawer.
Missing Out on Growth
Beyond the damage from inflation, hoarding cash means savers are forgoing potential interest earnings. Ms Guevara provided a compelling comparison. "Moving the same amounts into an interest-bearing account gives your money the chance to grow rather than shrink," she stated.
For instance, placing £1,000 in a 3.75 percent Cash ISA would earn £37.50 in a year, growing the total to £1,037.50. The benefit is more pronounced with larger amounts: £5,000 would grow to £5,187.50, and £10,000 would increase to £10,375.
Overall, the difference for a £1,000 sum between keeping it at home versus saving it in an ISA is £73.50 annually. "At a time when every penny counts," Ms Guevara emphasised, "these everyday examples show just how costly it can be to keep cash at home, and why ISAs remain one of the most effective tools for protecting savings from both inflation and tax."
How Much Cash Should You Keep at Home?
Before rushing to deposit all your cash, experts advise maintaining a small, sensible amount for emergencies. Ms Guevara recommended: "It is a good idea to keep a small amount of cash at home for emergencies, but it should be just that: a small amount. Enough to cover a couple of days' essentials if your card stops working or there’s a local outage."
This advice is particularly relevant given that most home insurance policies only cover cash up to a limit, typically between £200 and £500. She also suggested storing this emergency cash in a memorable but discreet location.
For any funds beyond this emergency buffer, the message is clear. "Not only is it safer in a savings account, but it also means your money is working for you rather than sitting idle and losing value," Ms Guevara concluded. "Piggy banks and biscuit tins were never intended as secure homes for hard earned cash. At a time when every penny counts, it’s vital that savers make their money work harder for them."
