Inflation has reliably eroded the real value of cash deposits, with a 21% decline in purchasing power for euros since 2007, 23%for US dollars, and 25% for sterling. (UBS)

We advise investors to progressively lock in attractive yields in high-quality fixed income. Over the long term, balanced portfolios have historically outperformed deposits over most time horizons.


Cash deposits have become more appealing to many investors as central banks tightened policy.


  • In the US, the federal funds rate target range has risen to 5–5.25%, while the 2-year Treasury yield was 4.74% as of 17 July.
  • In the Eurozone, the deposit rate stands at 3.5%, compared with a 2-year German Bund yield of 3.3%.
  • Cash at the bank may seem like a refuge in an uncertain economic environment.

But this appeal is superficial, and we favor locking in yields and sticking with a diversified portfolio.


  • Deposit rates have the potential to fall fast when central bank policy turns more dovish.
  • Attractive yields on bonds can be locked in, providing the added benefit of diversification and the potential for capital gains if economies head into recession.
  • A balanced portfolio of equities and bonds has historically outperformed cash over most time horizons—with a 60/40 portfolio beating cash around 80% of the time over a five-year period.

So, investors should avoid adding excessively to deposits and favor bonds.


  • We think investors shouldn’t wait for the final rate hike before looking for opportunities to lock in attractive yields.
  • We expect high grade (government), investment grade, and sustainable debt to deliver good returns over the balance of the year, and we prefer five to 10-year maturities.
  • Senior bank bonds continue to offer higher yields compared to those of similarly rated nonfinancial companies.

Did you know ?


  • Inflation has reliably eroded the real value of cash deposits, with a 21% decline in purchasing power for euros since 2007, 23%for US dollars, and 25% for sterling.
  • A 60/40 portfolio of US large-cap securities and bonds beat cash around 80% of the time over a five-year period, based on data going back to 1926.

Investment View


We see a good opportunity to lock in elevated rates as the Fed engages in a balancing act between price stability, full employment, and financial stability. We see opportunities in high grade (government), investment grade, and sustainable bonds, and select senior financial debt. Actively-managed fixed income strategies can help investors take advantage of the breadth of opportunity.


Main contributors: Vincent Heaney, Christopher Swann


Original report - What should I do with my cash holdings?, 18 July 2023.