The practice of holding wealth or savings as cash, from an economic point of view, is full of paradoxes and puzzles.

The paradox of thrift is one, where it is postulated the more that is held in savings, the worse it is for the economy, as it means consumption falls and therein reducing economic growth.

This however is not a problem the UK has been suffering from recently.

Savings levels are at record lows, as low interest rates, rising house prices and a culture of consumption have encouraged Britons to borrow, spend and live for today.

Yet, the recent credit crunch and the sudden panic over the safety of the Northern Rock building society (or Northern Wreck as it is now referred to) have led to predictions the good times could soon be over.

Problems in the US sub-prime markets have hit credit lines for the likes of Northern Rock and a confused response by the UK government and regulators contributed to mass withdrawals.

This was only stemmed by a blanket guarantee from the Chancellor, raising the 100% coverage for deposits from £2,000, to more like £35,000. This has reassured investors, but arguably distorted the savings market.

One interesting facet of the Northern Rock debacle was how much is held in cash by some, with individuals having their life savings in six figure sums held there.

This goes against conventional financial advice on diversification and the risk of losing pace with inflation by holding cash.

But it also shows how risk-averse and reluctant many investors are to let go of the safety of cash deposits, where interest rates are known and liquidity is high, at least until a panic ensues and investors queue down the street to make withdrawals.

Arguably, financial advisers should be using Northern Rock as an example of the need to diversify and for the advantages of low risk equity or bond funds, but it doesn’t seem too likely this will happen.

For one thing, now does not seem like a good time to move into equities. For another, advisers seem as surprised as anyone else by recent events and are at a loss as how to respond.

Perhaps advisers and banks can find ways of promoting a more holistic approach to savings, where cash deposits, investments in growth assets, mortgages and other financial items are managed better.

Because at present, it seems cash in the bank is all that matters for some.