Cash may no longer be king - but it is an important part of any investment portfolio. Cash provides liquidity and diversification, and is an essential holding - especially for investors who hold illiquid or unquoted assets such as property and AIM listed stocks.
The official rate of inflation has fallen to 2.8% in July, an improvement from the previous month when the Consumer Prices Index was 2.9%.
These conditions are tough for savers - with inflation riding high it is almost impossible to find a savings account which protects your cash from being eroded. Only one account, an ISA offers a positive real rate of return.
Savings rates have been declining over the past four years - ever since the Bank of England lowered its base interest rate to 0.5% in March 2009.
But the final nail in the coffin came last summer when the Government launched its Funding for Lending scheme which allowed high street banks to access cheap cash to help first time buyers on the property ladder.
This meant there was no incentive to offer savers competitive savings rates. In the past banks needed savers to deposit money so they could lend it out - but this is no longer the case.
Anna Bowes from aggregator site SavingsChampion.co.uk said the very small decrease in inflation this month does not offer savers much respite.
"For tax payers there is still only one account that is offering a return that beats inflation – and that is only for First Direct current account holders with more than £40,000 in their cash ISAs," she said.
"Outside of ISAs there is a seven year fixed rate bond which is paying 3.50% gross (2.80% net of basic rate tax) – so those basic rate tax payers prepared to tie up their cash for a long time could at least match the current rate of inflation, as long as it doesn’t increase over the next few years."
Ms Bowes said that savers that do not pay tax have a little more choice, but not much.
As well as the above accounts there are two five year fixed rate bonds – Secure Trust Bank Fixed Rate Bond 5 Year Term (Series 6) paying 2.91% gross/AER and Shawbrook Bank 5 Year Fixed Rate Bond Issue 7 paying 2.90% gross/AER.
She concluded: "The message is clear – interest rates are likely to remain low so inflation will continue to be the savers enemy. It’s vital for savers to fight back and find the best possible rates for their savings – using all the weapons in their armoury such as cash ISAs that can provide a well needed tax free boost to their interest.”
To find out how much cash you already hold in your portfolio, use Morningstar's 
X-Ray tool. This will breakdown your existing holdings by asset class, showing how much your funds' managers have allocated to cash and help you determine how much you need to hold yourself
