Why you can’t save your way to wealth
Is it time to rethink your strategy?
Savings accounts are losing their appeal
For the past few years, high-interest savings accounts (HISAs) have been a safe haven of the cautious. With interest rates surging and economic uncertainty looming, cash savers have enjoyed returns of 5-6%, levels we’ve not see in decades. Such environments raise questions about why we should risk the volatility of the stock market if cash is finally paying.
The tides have since turned. The RBA officially moved to monetary easing, cutting rates three times this year. Markets also appear to be pricing in suggest a further reduction to 3.2% by early year’s end. The implications of this are far and wide, but I’ll be discussing how this shift signals the end of the cash returns era.
Despite the rate cuts, you’ll find many HISAs still advertising rates up to 5% p.a., but these are often short-lived introductory offers requiring customers to jump through hoops to qualify. If we strip away the marketing, you’re looking at a much bleaker picture of around 3% depending on the provider.
The RBA’s outlook for headline inflation hovers between 2.5-3% over the next few years. That means that real returns on HISAs (adjusting for inflation) might be negative when tax is taken into account. This should serve as a critical wakeup call: cash won’t grow your wealth, and in most cases, might not even preserve capital over the long term.
Cash as a safety net
It’s important to underscore that whilst HISAs have their place, they’re best used as a tool for emergency funds and short-term financial goals, rather than a robust wealth building strategy. Of course, this is referencing those at the beginning of their investment journey, rather than individuals in the stages of capital preservation.
I’ve previously written about the importance of emergency funds, so I’ll keep it short here. Beginners most commonly conflate their emergency savings with general cash accounts. The purpose of an emergency fund is having a liquid and stable cash flow covering between 3 – 6 months of essential expenses. Beyond that, in the absence of any short-term goals (e.g. holiday, house deposit), excess cash sitting in HISAs is counter productive to wealth building.
By hoarding more cash than your goals require, you forgo the opportunity of achieving higher returns elsewhere. If inflation averages between 2.5 – 3% and your HISA earns 4%, your real return is marginal at best. If your rate drops to 3% or below, you’re effectively losing purchasing power. On the other hand, the ASX has returned around 9% per annum (before inflation) over the last 30 years.
Market returns – 1 July 1995 to 30 June 2025. Source: Vanguard.
The behavioural angle
Stake’s newly released 2025 Ambition Report aims to shed light on the emotional barriers that prevent people from investing. The report reveals that although a lack of capital is cited as the top barrier to investing, the money is often there. Cash is just reserved for savings, mainly due to emotional barriers.
When surveying non-investors, referred to as ‘Stallers’, Stake found that 56% of them claim the main reason they don’t invest is not having money. Fair enough. But what’s interesting is that this sentiment was even observed amongst higher-income earners. The next most common reasons were that 2) fear of losing money in the market and 3) a preference to keep excess cash in a savings account.
Source: Stake Ambition Report. 2025.
Beyond financial constraints, these findings highlight the emotional barriers that many prospective entrants to the market are facing. The most prominent bias at play is loss aversion – the phenomenon where the pain of losing something is felt more intensely than an equivalent gain.
My colleague Shani and I recently had the opportunity to share our thoughts in the Ambition report. We both underscored that whilst savings accounts might feel ‘safer’, they rarely beat inflation over the long term. This results in quietly losing money every year, even though you feel like your funds are ‘safe’ because your balance grows nominally. This illusion of safety is one of the key differentiators between investors who understand volatility is part of the journey and non-investors who opt for safety at the expensive of building real wealth.
I think it’s important to reframe the narrative. Investing isn’t about gambling. It doesn’t have to involve making high conviction bets and constant market monitoring. That’s not the reality for most successful investors.
The path forward
Cash will always play a role in investment portfolios. But for younger investors with longer time horizons, it typically makes up a small piece of the puzzle reserved for near term goals, emergency funds or tactical flexibility.
Putting a chunk of money into the market all at once can be stressful. But moving funds from your HISA into a long-term investment portfolio doesn’t require going all in at once. Following a dollar-cost-averaging method and transferring small amounts over a set period. This reduces the risk of mistiming the market and helps build confidence over time.
As markets move and your life evolves, your portfolio will too. so should your portfolio. It pays to revisit your strategy to make sure your asset allocation still reflects your goals.
Here are some links on how to get started:
