UK finance jargon - in plain English
What you give up when you choose to do one thing instead of another.
Opportunity cost is the value of the next best option you did not choose. Every financial decision involves a trade-off. When you spend money on something, the opportunity cost is what that money could have done instead. It applies to time and money alike. It is not about regret; it is about being honest that every choice has a real cost even when you do not see it directly.
You have £5,000 sitting in a current account earning nothing. The opportunity cost is the interest or investment return you are missing. At 4.5% in a cash ISA, that is £225 a year you are not earning. The money feels safe, but staying put has a cost too.
Opportunity cost is a concept for thinking more clearly, not a precise calculation. Real decisions involve uncertainty, personal circumstances, and factors that numbers cannot fully capture.
People treat doing nothing with their money as a neutral choice. It is not. Keeping cash under the mattress or in a zero-interest account has an opportunity cost, particularly during periods of high inflation.