According to the Bank of England, half of all banknotes are either currently abroad and used as travel money, or in cash as a household financial reserve.
The Bank of England (the main issuer of banknotes in the UK) said following a recent regular study that only about a quarter of physical cash in circulation is actually being used to buy and sell goods and services. According to the latest figures, the Bank estimates that banknotes with a face value of £62.6bn was currently in circulation; that is the equivalent of £1,000 for everyone in the country.
Recent figures indicate that the number of cashless payments had overtaken the use of notes and coins for the first time. Card use, of all types, and digital transactions, using smartphones or other devices, are on the rise. Despite that, the facevalue of banknotes in general circulation has intriguingly tripled over the last 20 years, according to the Bank of England. It is predicted that over the next few years consumers are likely to use cash for a smaller proportion of the payments they make. Despite that, the overall demand for banknotes is likely to remain resilient; physical cash is not likely to disappear any time soon.
The figures from the Bank of England suggest that between 21% and 27% of the total amount of currency in circulation was being used for transactions at any one time last year. The remaining 79% to 73% was in various places – including “buried in the garden.” According to the Bank, some people are choosing to save by putting cash in a safety deposit box, under the mattress, or elsewhere, as opposed to putting the money in a bank account.
The report also noted that a high proportion of banknotes in circulation is being hoarded by overseas visitors – either by them keeping British currency after returning from a trip to the UK, or as a store of a stable currency of value.
This is but one illustration of how there is falling trust in banks. Stashing cash can indeed be safer, as there will be no losses in failed investments or rates. It is a very practical savings measure, which over time can add up. Whilst saving physical cash, though, there is that temptation to spend that ever present cash reserve.
Whilst storing that cash yourself, it is important to protect that physical asset – especially if it ends up as a large sum. It is important to note that even the most basic forms of bank security offers over a hundred times more protection than what the average home security system does. Indeed, that issue of security does not even take into account greater accidental risks of losing that cash either accidentally or via a disaster like fire or flooding. Comprehensive home insurance may provide some cover for any cash thus list – but there would be a limit placed upon the amount covered.
Another issue with hoarded banknotes is that paper tends to degrade and rot over time. If hoarded for a long time, those banknotes could well rot away. Damaged bank notes can be replaced, though, in most cases.
Despite those and other concerns, many such savers may think that they are saving, and that they have a physical, tangible asset in cash. Unfortunately, without any interest to offset it, inflation is busily devouring any stashed cash – reducing the value year upon year as the cost of buying goods steadily rises. That large cash amount saved away effectively, over time, loses a great deal of value that way.
Further, that money is being saved – and not spent. Instead of keeping it at home, let that cash make interest, by using a savings account, ISA, etc – or maybe even a careful investment. In other words, let that cash do something as opposed to just sitting there in a drawer. Any interest or return, regardless of how low, is always an improvement of the 0% interest of money stashed away.