The Critical Cash Portion of Your Portfolio

Holding significant cash reserves in bank accounts is like watching your wealth slowly disappear. With Irish households currently holding a record €150+ billion in deposits, according to the Central Bank of Ireland in February 2025, many people are missing opportunities to make their money work harder for them.

The Hidden Cost of “Playing it Safe”

The research from the Central Bank of Ireland also stated that 87% of the €250+ billion on deposit is earning an average of only 0.13% interest, while inflation runs at 2.2%. The maths is simple but concerning.

• This money is losing purchasing power every day
• Over five years, €100,000 could effectively become worth €10,000 less
• After accounting for DIRT, the real returns are even worse

This isn’t just a minor inconvenience, it’s a significant and unnecessary erosion in a financial plan.

Understanding Your Personal Cash Cycle

Everyone has a unique ‘cash cycle’, the pattern of money flowing in and out of your life through income, expenses, planned purchases and irregular large expenditures.

By mapping out your personal cash cycle, you can:

• Maintain just enough liquidity for near-term needs
• Deploy excess capital more productively
• Balance growth potential with being prepared for an emergency

Beyond the Deposit Guarantee Scheme

The Deposit Guarantee Scheme protects deposits up to €100,000 per person per institution, high-net-worth individuals often exceed this limit in individual accounts.

While in theory this may provide some security, simply spreading money across multiple banks adds complexity without addressing the fundamental problem of poor returns.

How Much Cash Should You Actually Hold?

As financial planners, we typically recommend keeping six months of essential expenses readily available as an emergency fund.

This provides necessary security and peace of mind. But beyond that, your excess cash deserves better treatment.

Integrating Cash into Your Financial Strategy

Cash should be an active part of your financial plan, not an afterthought. A well-balanced portfolio typically includes:

• Cash – for emergencies and immediate needs
• Bonds – for capital preservation and modest income
• Equities and other investments – for long-term growth

By approaching cash management strategically, you transform what could be a stagnant asset into an integral part of your wealth-building toolkit.

Smart Alternatives for Irish Investors

Irish Government Bonds for tax-efficient growth

For individuals seeking a conservative yet more productive home for surplus cash, Irish Government Bonds offer compelling advantages:

• Security – backed by the Irish State
• Better returns – currently offering 2-3% (outperforming most bank deposits offered)
• Tax efficiency – no income tax, DIRT or Capital Gains Tax applies
• Flexible terms – options ranging from 3-10 years

This makes them particularly attractive for long-term wealth preservation with minimal risk.

Money Market Funds – Ideal for Business Cash

If you’re managing corporate or business funds, money market funds deserve consideration:

• Investment in high-quality, short-term debt instruments
• Enhanced liquidity with daily access to funds
• Low volatility compared to other investment options
• Better returns than typical corporate bank deposits

These funds provide an excellent temporary home for capital awaiting deployment or earmarked for upcoming expenses in the medium term.

Time to Take Action

With inflation continuing to erode the value of idle funds, doing “nothing” with excess cash is rarely the wisest choice. The first step is understanding exactly how much liquidity you truly need and then put your surplus to work in ways that align with your broader financial goals.