Saving vs investing: how much cash should you keep?

While this article is intended to be educational, it is not financial advice. Triodos Bank cannot make recommendations based on your personal circumstances. If you aren't sure what’s right for you, you might want to speak to an independent financial adviser.

Have you considered any debt you might have? 

Before you think about money you want to save or invest, you should consider any high-interest debt you have. This might be credit card with a high interest rate, for example. It often makes financial sense to put money towards clearing this kind of debt first because it minimises the risk of you losing money to interest charges.  

However, you should not take this approach for student loans or mortgages, because this type of debt operates differently compared to consumer debt. Whether you should overpay a student loan or mortgage depends on your specific circumstances. 

Do you have an emergency fund? 

One of the first savings goals people often set is an emergency fund. This is money you keep aside for unexpected costs or sudden loss of income. A common aim is to save three to six months of your core living expenses - this is the amount you need to live on every month. If your bills, mortgage/rent and grocery shop come to £1,000 a month, you might want to put aside between £3,000 and £6,000, depending on the stability of your income. Some people who are self-employed, for example, might choose to build a higher emergency fund if their income isn't as regular. This can give you a buffer if your income stops for any reason, or if you need to pay for something that falls outside of your usual budget, like major home or car repairs.  
 
For most people, you should have cash set aside for emergencies before you prioritise investing. It’s best to keep this money in an easy-access savings account, such as our Everyday Savings account or our flexible Cash ISA. 

Are you saving for the short or long term? 

After you've considered your emergency fund, it's then worth thinking about whether your remaining savings goals are for the short or long term. Although cash savings won’t fall in value, sometimes interest rates struggle to keep up with rising prices, so the purchasing power of your money can reduce over time. 

Short term 

For money you won't need for a couple of years but don't feel ready to invest, a fixed-term account can be a useful option, such as our Fixed Rate Cash ISA or Ethical Savings Bonds. Locking your money away for a set period often means access to a higher interest rate.  

Long-term  

For money you won’t need for a much longer time, you can consider investing. Investing is not the same as keeping your money in a savings account – the value can go up or down because your investments might be worth more or less at different times, depending on what’s happening in the market. Investments are generally considered a long-term commitment, with many providers suggesting a minimum of five years. The longer money is invested, the more time it has to grow and recover from drops in the market. 
 
In the past, investment earnings have outperformed savings over the long-term, and though there’s no guarantee this will be true for the future, this means investing may be suitable if you want to try and maximise your returns. However, your money is at risk, and you should not invest any money you might need access to or cannot afford to lose. 

Are you making the most of your pension? 

If you're planning for the long term, it can be worth considering whether you're contributing enough to your pension. Pension contributions attract tax relief, and many employers might match a portion of what you pay in, which can significantly boost the amount you save. For some people, increasing their pension contributions may be a more tax-efficient way to save for the long term than other forms of investing. Tax treatment depends on individual circumstances and may change in the future. 

Do you feel confident investing? 

Making decisions about your money is not just about numbers. It’s about how you feel about it too. If the thought of investing money worries you, then you can start small and choose investments with less risk, though it's worth remembering all investments carry some level of risk. If you prefer the reassurance of having cash in savings, building a larger savings pot may be the right priority for you.

Have you thought about your ISA allowances? 

Your ISA allowance is the amount of money you can pay into ISAs each tax year, as a tax-free way to save and invest. This means you don’t pay tax on any earnings you make in your ISA accounts.

Savings allowance

Alongside your ISA allowance, you have other types of allowances which mean that you can earn money on your savings tax-free, without using an ISA. You have a personal savings allowance, which lets basic rate taxpayers earn £1,000 in interest each tax year without paying tax on it. This drops to £500 for higher rate taxpayers, and additional rate taxpayers don't receive an allowance. So, if you have a smaller pot of savings and don't expect to exceed your personal savings allowance, an ISA may be less immediately useful. However, money held in an ISA stays tax-free year after year, so using your allowance now can be worth doing to protect your options later, particularly if your savings grow or your circumstances change.

Investment allowances

The same logic also applies to your investments, because there are allowances specific to investments like stocks and shares, such as the dividends and capital gains allowances. A dividend is a payment you can earn while owning shares, and capital gains are profits you make after selling them. You can earn £500 in dividends and £3000 in capital gains before paying any tax. For any investments held in a Stocks & Shares ISA, you don’t have to pay either dividend or capital gains tax. 

The current ISA allowance is £20,000 which can be split across cash or stocks & shares ISAs. If you’re under 65, this will change from April 2027: the cash ISA allowance will be limited to £12,000. The remaining £8,000 can only be used in investment ISAs, such as a Stocks & Shares ISA or Innovative Finance ISA – but you could still choose to put up to the full £20,000 into an investment ISA if you wanted to.  
 
Historically, investments in a Stocks & Shares ISA have often grown more than cash savings earn in interest over the long term, though returns can go up and down and past performance isn’t a guarantee of future returns. If you already plan to invest, it may make sense to direct more of your ISA allowance into a Stocks & Shares ISA. As a general guide, if you expect to keep more money in cash, prioritise a Cash ISA. If you expect to keep more in investments, prioritise a Stocks & Shares ISA. 

What kind of impact do you want to create? 

Where your money sits shapes what gets funded. Whether it’s in savings or investments, your money is being put to work by your bank or provider, and the choices they make with it shapes the industries, projects and companies that grow, or don’t. 

At Triodos, our lending is focused entirely on organisations working towards a fairer, greener and more inclusive world. Your savings help fund UK-based projects across sectors like renewable energy, affordable housing, organic farming, nature recovery and social care. 

Our investment funds provide long-term funding for companies and initiatives working on some of the biggest transitions of our time, from clean energy to sustainable food systems. We publish the details of every organisation that our funds invest in on our website, so you can see exactly where your money goes. 

If you choose to invest, you have a little more choice over where your money is directed, because you can select the investment fund that aligns most closely with the change you'd like to see in the world.