Is Cash now King?

With interest rates rising, we discuss our views on cash versus equities for personal injury and Court of Protection clients.

13 October 2023

Since December 2021, interest rates have been rising steadily in an attempt to tame inflation. As at the time of writing, the Bank of England (BoE) base rate stands at 5.25% and the Court Funds Office Special Account is paying 6.0% interest.

Given such attractive rates, we thought it would be helpful to outline our views on the trade-off between cash and equities. 

Cash versus equities 

Personal injury and Court of Protection clients cannot take the same levels of risk as a typical private client. When considering investing, our long-term absolute return targets are cash +2% for relatively low-risk clients and inflation +2% for medium-risk (lower range) clients. 

History tells us that over the long term, investing in equities has comfortably outperformed holding cash. Looking at rolling three-year periods since 1945, equities have beaten cash in more than three in four periods.


Investing in equities versus holding cash, with an initial investment of £100

‘Cash’ is the returns to the Barclays UK Treasury Bill index - income gross.

Sources: Refinitiv, Rathbones.

The impact of inflation – the thief in the night 

We’ve written extensively about the risk of inflation, which we believe is the greatest threat to the longevity of our clients’ funds. (Inflation can erode the real value or purchasing power of a cash fund. Although it is coming down, inflation is still c6.8%, which is significantly above the Government’s long-term target of 2%.)

Indeed, the importance of putting money to work in equities (or other risk assets) becomes even clearer when we adjust for inflation: 


Initial investment of £100 (log scale), adjusted for consumer price inflation

‘Cash’ is the returns to the Barclays UK Treasury Bill index - income gross

Sources: Barclays, Rathbones. 

Long-term investment decisions 

Clients, deputies and trustees take a long-term view when obtaining advice and making decisions on how best to manage their investments. This is the right approach as our clients have lifetime needs that must be met from one pot of cash that can’t be replaced. Our long-term market assumptions suggest that credit and equity markets are likely to outperform cash by a considerable margin over the next decade. 

It is important to note that any investment portfolio will be diversified within an agreed risk profile.  In line with our discretionary mandates, we have been making changes in our client portfolios to increase assets that have higher returns as a result of rising interest rates.    


Rathbones’ 10-year annualised % total return projections in GBP

*Solid bar refers to base rates minus 1%; dotted line assumes an investor can access base rate in full (for example via a term deposit). Our projections were last updated in Q1 2023

Sources: Refinitiv, Rathbones.

Timing a switch to cash 

As interest rates are attractive, we have analysed whether it would sensible to switch to cash to take advantage of the peak in interest rates. As demonstrated in the charts below, this is not a winning strategy over the longer term. 


Performance of US equities versus cash portfolios

Source: Refinitiv, Rathbones.

The light blue lines on the chart show the performance of cash (T-Bills) over the 10 years following the peak of all interest rates cycles since 1960 (i.e. the best cash rate available in each cycle). In the absence of a financial or asset bubble crisis, locking in cyclically high rates still hasn’t beaten equities. 


Performance of US equities versus cash portfolios (median performance (%) following peak of interest rate cycle)

Source: Refinitiv, Rathbones.

The chart compares US equity and cash performance during one-, three-, five- and ten-year periods after the interest rate cycle peaks. Again, equities outpace cash. 

What comes next? 

Inflation is heading in the right direction and with this, a more positive outlook suggests the end of its rate increases is not far off.  It is likely that interest rates will then start to come down, although at what pace will depend on inflation data points and the BoE’s appetite to relax rates. 

There are of course short-term considerations for which a cash strategy might be appropriate for some clients – but we discuss this further in our next edition of Deputy Matters

If you’d like to discuss this topic further, please contact us via email at or speak to your usual Rathbones Investment Manager.