6 reasons why you might not want to hold cash in a bank account

Drawbacks to holding too much cash in a bank account

Cash should always be safe, liquid and accessible.

The point of an emergency fund after all is that the funds should be available whenever we need them.

However, it is also important that we are aware of the drawbacks to holding too much cash in our bank account. Although banks are considered to be a safe and convenient option for our money, here are six reasons why you might want to look at other ways to store and grow your wealth.

Limited Protection

If you have a substantial amount of money on deposit, the protection program in place in the jurisdiction where you hold your money may not be enough in the event of a bank run.

In EU countries like Poland, the amount protected is EUR100,000.

In the UK you are protected up to £85,000 in total across all accounts you hold within the bank/banking group. For example, sister banks Halifax and Bank of Scotland, both owned by Lloyds Banking Group, share a banking licence and so are counted as one institution. Cash saved with those two banks would only be covered up to a maximum £85,000 combined.

Low Interest Rates

Banks typically offer low interest rates on their current accounts, which means that your money won’t grow as quickly as it needs to.

Inflation

Inflation is a significant factor to consider when deciding whether to keep money in the bank.

If inflation rates exceed the interest rates on your savings account, as they are currently, you are essentially losing money.

Opportunity Cost

By leaving your money in a low-interest savings account, you are likely to miss out on potential investment opportunities that could generate higher returns.

Currency Devaluation

Currencies like the Polish Zloty tend to be more volatile than Sterling or Euro.

If you have a local currency denominated bank account, there is a risk that the value of the Zloty will decrease over time, reducing the purchasing power of your savings.

Accessibility

Depending on the bank’s policies, accessing your funds may be difficult.

There may be limits on withdrawals or fees for transferring money out of your account.

Although there is obviously a need to keep some money in a bank account, it is crucial to consider the risks involved before making a decision about how to best protect and increase your wealth.

Read our article: Expat banking in Poland.