Keynes' conception of investment Keynes defines saving as equal to investment, saying:
&quot;Having now defined both income and consumption, the definition of saving, which is the excess of income over consumption, naturally follows ... Our definition of income also leads at once to the definition of current investment. For we must mean by this the current addition to the value of the capital equipment which has resulted from the productive activity of the period. This is, clearly, equal to what we have just defined as saving. For it is that part of the income of the period which has not passed into consumption.&quot;
To me, Keynes' assumption that all income that is not consumed is invested in augmenting capital seems problematic. It's pretty obvious that people do keep money on hand without either consuming it or investing it. Keynes himself doesn't seem to rely on this definition in the rest of The General Theory. In fact, his own concept of liquidity preference seems to contradict this definition. My understanding of liquidity preference is that it is the desire of people to hold their money in liquid form, as opposed to investing it to earn interest. Keynes himself says:  &quot;For if a man hoards his savings in cash, he earns no interest, though he saves just as much as before,&quot; acknowledging that people can and do hold parts of their income without investing or consuming it.
Am I misunderstanding Keynes? Does Keynes address this definition further in any of his works?
The investment ($I$) equals savings ($S$) result is derived by Keynes just from national identity, as a result it just hold by definition. Keynes in the passage starts with the simplified version of national identity that omits government. That is:
$$Y=C+I \implies I=Y-C$$
And simply solves it for investment. The solution of investment tells us that private investment is equal to difference between income and consumption. But a difference between income and consumption is also by definition savings $(S)$. Hence keynes derives this result just using accounting. In the end accounting always has to hold because its just an identity based on definitions - in itself it has no economic meaning (In a proper version of identity that would include government this would still hold true but then investment would be equal to private and public saving $I =Y-C-G$).
Furthermore, later when it comes to the paradox of thrift Keynes does not abandon the above interpretation. Rather Keynes would say that during recession $I$ is fixed at some level $\bar{I}$ so any increase in savings $S=Y-C$, which can happen only by lowering consumption $C$ will be just corresponded equal fall in income $Y$. The argument is that your spending is an income for someone else - you cut your spending you will also cut their income - however by cutting their income you also force them to spend less and their spending is your income (this holds in liquidity trap where $I$ is fixed).  At least this is the contemporary interpretation of what Keynes meant as a standards of rigor in economics were not as high in the  past as they are nowadays always leaving some room for interpretation  (see for example Blanchard et al. Macroeconomics an European Perspective - the box about paradox of thrift).
Even when we go beyond mere accounting identity to the IS-LM AS-AD model which is currently the dominant model used to explain the macroeconomy the level of investment and effective demand will be determined first by peoples exogenously given expectations and preferences and the level of savings will be afterwards determined to match this (see Romer's Advanced Macroeconomics for more complex treatment of IS-LM models).

A  side note: you should also note that precautionary savings (i.e. money households set aside to have some reserve just in case) will still normally be transformed into investment provided it is held in some account even if it is at normal deposit account even though you as an account holder might never know about it. The above still applies though - I am just mentioning this because from reading your Q I thought you might be having this misconception.