THE COST OF LIVING

IS RISING

Are your savings structured to protect from inflation?

If you have booked a UK break, eaten in a restaurant or bought new clothes, you may have noticed that the price of goods and services is rising rapidly. Many people don’t have the pension savings they would like, but what they might have is a valuable home.

The rate of inflation has risen again in the last few months (April to July), from 1.6% to 2.1% – rates previously not seen since 2019 [1].

A high inflation rate erodes the buying power of your savings and when coupled with historical low interest rates, it becomes harder to get the most from your savings.

BUT WHAT ACTUALLY IS INFLATION?

Simply put, inflation is the rate at which prices are rising – if the cost of a  1 jar of jam rises by 5p, then jam inflation is 5%.

It applies to services too, like having your nails done or getting your car valeted. You may not notice low levels of inflation from month to month, but in the long term, these price rises can have a big impact on the buying power of your savings.

HOW COULD I STRUCTURE MY SAVINGS TO REDUCE THE IMPACT OF INFLATION?

It does very much depend on your individual circumstances but firstly it is widely suggested that you should have the equivalent of at least six months’ required income in easy access cash savings to cover any unexpected expenses.

A further proportion of savings could then be held in a range of fixed term products, preserving your capital, and providing some element of return but unlikely to exceed that of the current inflation rates.

It is the treatment of any surplus savings that could determine whether you can achieve an overall return above inflation.

WHAT HAPPENS NEXT?

Like so many aspects of life, the best course for stability is about having balance. If you are holding large amounts of cash savings, then it is worth considering investment alternatives such as a tax efficient Stocks & Shares Individual Savings Account (ISA) or a General Investment Account (GIA). This could include a single investment fund or a blended portfolio which meets your attitude towards taking risk and your longer-term goals. Whilst of course not guaranteed, such investments are more likely to provide returns above inflation.

If you would like to discuss your options or arrange a review of your savings and investments, please do get in touch.

[1] Office for National Statistics – inflation and prices indices.