It’s been five years since the Royal Mint introduced the 12-sided £1 coin. In that short time, the value of money and how we use it has changed significantly.

When the Royal Mint announced the 12-sided £1 coin it said it was “the most secure coin in the world”. Features like being bimetallic and having a latent image means it’s much more difficult to counterfeit than its predecessor. Before the 12-sided coin was introduced, around 1 in 30 £1 coins in circulation was counterfeit. So, it’s very likely that you had a fake £1 coin at some point.

Over the last five years, there have been other changes to the currency we use. But as well as physical changes, the value of the money in our pocket and how we use it has changed too.

How much does a £1 coin buy?

If you have a £1 coin, how much is it worth? That might seem like a simple question. But when you start looking at what you can buy with that coin, you can see how its value has changed. This is because of cost of living rises. As items and services become more expensive, the value of your £1 decreases.

From one day to the next, you won’t notice the value of your money decreasing. Yet, when you look at the value over the years, you can see the difference.

Since 2017, when the 12-sided £1 coin was introduced, inflation has averaged 2.9% a year. For the value of a £1 coin in 2021 to have the same value it did in 2017, you’d need an extra 12p, according to the Bank of England’s inflation calculator.

12p may not seem like a huge difference when you look at your budget or income. However, when you extend that across all your outgoings it adds up. If you had savings of £10,000 in 2017, it would need to have grown by £1,193.60 over the last five years just to retain the same value.

And that’s just the effects of inflation over five years. Over a longer period, the cost of living can really affect the value of the money you hold.

If you had £1 in 2000, you’d need £1.79 in 2021 to buy the same goods or services. So, the longer you hold money, whether physical or in a savings account, the greater the effects of inflation. Assessing the effects of inflation on your long-term plans is crucial and, in some cases, alternatives to holding cash may be appropriate.

The future of cash: Do coins and notes still play a role in your finances?

As well as the value of the money in your pocket, how you use cash has probably changed too. How often do you still use coins and notes when making a payment?

In 2017, debit cards overtook cash as the most frequently used payment method in the UK, according to Bank of England data. Since then, there have been new ways introduced to pay for your items. You may now use your smartphone to hold digital cards, and contactless payments have also become hugely popular.

Figures show that the use of cash has been declining gradually and the pandemic has sped up the transition to other forms of payment. At the height of the Covid-19 pandemic, many shops did not accept physical money to help limit contact between employees and customers.

UK Finance data shows that the number of payments using notes or coins fell by 35% in 2020. In 2010, cash accounted for around 56% of all payments.By 2020, this had fallen to 17%.

It also found that 13.7 million people led a cashless life in 2020, compared to 7.4 million just a year earlier. For many, a cashless society is already here, and it’s a trend that’s only set to grow.

Despite this, cash still plays an important role. There is more than £70 billion worth of notes in circulation today. That’s around twice as much as there was a decade ago.

So, next time you hold a £1 coin, think about how its worth has changed and how you use cash.

If you’d like to discuss the effects of inflation on your savings and the cash you hold, please contact us. For some, alternatives such as investing your money can help your assets keep pace with inflation.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.