Investing in cash works much like having a bank account. It involves holding different types of currencies across the world earning a return from regular interest payments. Holding cash is a highly liquid investment strategy that’s considered very low risk, but the returns are usually small relative to other asset types.

Pros of investing in cash

• Cash is considered a defensive asset – this means when markets fall, your cash won’t lose as much value as other assets like shares might.

• Cash is highly liquid. Investors can use this cash to purchase other investments and quickly take advantage of new opportunities if they arise.

• As cash generates returns through interest payments, it can benefit when interest rates are climbing.

Cons of investing in cash

• Cash is a low-risk asset class, it typically doesn’t generate high returns.

• Inflation will gradually erode the value of your cash holdings over time.

• Just as higher interest rates improve your returns, a falling interest rate will mean lower returns.

How to invest in cash

There are several ways to invest in cash, including through your super. Alternatively, you can put your money into a term deposit. These pay higher interest than a savings account but you can’t access the money you invested for an agreed period – varying from 1 month to about 5 years.