Cash As An Investment

updated: January 21, 2010

We all use cash to fund our general living expenses, whether we actually handle paper money itself, or simply transfer our cash electronically.  However, the purpose of this section is to consider cash as an investment.

We can define a cash investment as a deposit account, or similar arrangement, which promises to pay us a rate of interest and return our initial investment intact. 

As individual investors we use the retail arms of banks and building societies to hold our cash investments.  Such organisations also have a ‘wholesale’ arm where they lend to, and borrow from, each other.  This is referred to as the ‘money market’. 

The money market is beyond the scope of our present discussion except that we will touch on unit trusts, life assurance and pension funds which invest in the money market.

The only investment return from a cash investment is the interest that is paid.  The initial capital invested is returned but, as this is without growth, it is not an investment return as such.

Interest is usually paid at variable rates but fixed rates can also be offered.

To obtain further information please click here for our pdf Guide to Cash.