Why people are going back to cash

The use of cash has grown for the first time in a decade as households look to notes and coins as a way to help budget during the cost-of-living crisis.

Cash transactions accounted for 19 per cent of transactions in 2022, according to the British Retail Consortium (BRC) this week, up from 15 per cent in 2021. It is the first time since its reports started in 2013 that the use of cash has seen a year-on-year increase.

The report said: “Faced with rising living costs, cash was a useful tool for some people to manage their finances and track their day-to-day spending.”

The average transaction value fell from £24.49 to £22.43 as consumers made more ­regular but smaller purchases.

Earlier in the year Nationwide reported that the use of cash shot up by nearly 20 per cent last year.

The building society reported that 30.2 million withdrawals were made from its cash machines last year, up from 25.5 million a year earlier. Customers withdrew an average of £105 per visit – a 2 per cent decline on the previous year – but this was still 25 per cent more than pre-pandemic levels.

Otto Benz, of Nationwide, said: “For the first time in years we are seeing a natural rise in cash withdrawals as people return to using cash to help avoid getting into debt.

“Far from the end for cash, it shows that the future of money management is constantly evolving.”

The use of cash steadily declined since 2009 when contactless payments was introduced. This now account for more than a quarter of all transactions. Then the pandemic saw the use of notes and coins plummit amid fears that handling money could infect shoppers.

The increase also reflects a return to cash following the pandemic.

Commonly people report that having physical cash can help people budget as they can actively see what they are handing over at the tills, and that paying this way rather than a card makes shoppers question the value more. It’s also to keep track of something that you can see, with some people drawing out their money for the week so they can see how much they have left.

Social media has also played a part in making cash popular to younger people. Samantha Thomas, who runs a TikTok account called The Budget Mum, practices cash stuffing.

This involves putting cash into labelled envelopes for different categories such as groceries, bills or Christmas shopping. It allows people to pre-allocate money before spending.

She said: “I take cash out at the beginning of the month and put different amounts in envelopes. You physically put it away and then take out an envelope when you need it, for example, taking the beauty one to the hairdressers.

“I believe spending on card constantly could help contribute to people getting into debt and could mean they’re not aware of how much they’re spending before it’s too late.”

‘I’ve saved hundreds by using cash’

Alex Sergent, 40, converted to using cash over the past year.

The father of three said he noticed how expensive things were becoming and wanted to set himself a challenge to not only save money but also to get healthier.

He said: “I stopped using cash completely during the pandemic and was not using it much before. I just used my phone for payments so rarely had any cash with me.

“However, this year, I decided to start using cash again. By taking out cash, I tracked how much I was eating and spending at restaurants or bars when meeting with friends.

“I take out £5 with me if I want a coffee, around £10 for a drink and £20 or £30 for a meal out. It works really well and stops me buying more than drinks than I would want or are sensible as well.”

The civil servant, who lives in London, has worked out he has saved around £50 a month by doing so. However, he always has his phone with him, which is equipped with Apple Pay, in case somewhere doesn’t take cash.

“I live near Westfield shopping centre where they are plenty of ATMs so easy to access. It’s a simple challenge to myself but it’s working and I will continue with it.”

Although having physical cash will help some budget, unfortunately, it does mean their money will not be able to earn any interest as it would if it was in a bank. As rates have increased by savings, this is now a bigger problem that it was even a year ago.

For some, this will be unavoidable as they will be budgeting just to get by, but for those who do have some spare cash, it is worth considering putting the money into a savings account.

Currently, the best easy access deal is with Metro Bank, who are offering a return of 5.22 per cent, but if you can lock your money away for longer, you could get more. Metro is also offering the best one year fix with a return of 5.8 per cent.

Small businesses have also noticed that payments in cash are increasing.

Paul David Smith, who runs a photography shop in Newquay, Cornwall, told i: “We have noticed a huge uptick in people paying by cash in the past five months.

“Prior to this it had become quite rare for people to pay in the shop with cash and we were near 100 per cent card payments.

“Having mentioned it in passing conversation when people have paid, we’ve been told by multiple people they are taking a set amount of cash out each week and ensuring they only spend what they’ve taken out as it’s too easy to spend more by just tapping their card.”

Greg Marsh, CEO and cofounder of household money-saving tool Nous.co, added: “Using cash to stay on top of your spending while prices are rising can make sense. It’s easier to budget and track exactly how much things cost. There is a dark side to the convenience of a cashless society. It is so easy to go over budget without keeping close track of what you’re spending, it can turn shopping into a game of Monopoly – until you see your statement at the end of month.”

The Financial Conduct Authority (FCA) has proposed new rules to help people access cash after a reported spike in “cash deserts” – rural areas where there are no ATMs nearby.

The rules will require banks and building societies designated by the Government to assess and fill gaps, or potential gaps, in cash access provision that significantly impact consumers and businesses.

Assessments will need to take into account local factors, such as demographics and transport. Where firms identify gaps, they will need to act to address these needs, the regulator said.

Better access to cash is something that Cash Access UK, a not-for-profit company established by ten major high street banking providers, has been campaigning for, adding there are around five million people in the UK who depend on it.

Natalie Ceeney, chair of Cash Access UK, said: “For millions of people, cash works better for them than digital payments – particularly because it lets them budget more effectively. If you’ve got a limited amount for the rest of the week, withdrawing it in cash and setting money aside for essentials makes sense, and it will stop you going overdrawn.

“Digital payments are very attractive to many, but we’ve all experienced how easy it can be to tap and pay – and to overspend. For many people, cash is not just a preference, it’s a necessity. Digital payments simply don’t yet work well enough for everyone.”