Is rising inflation a wake-up call to review your savings?
You may have seen inflation in the headlines recently. Whilst a rising cost of living is normal, the rate of inflation has increased significantly over the past few months.
What does inflation mean for savings?
The Bank of England (BoE) targets annual inflation of 2%. However, the current rate of inflation is 5.5%, Office for National Statistics figures show. Inflation is measured using the Consumer Price Index (CPI), which tracks the prices of around 700 items.
There are steps the BoE can take to reduce inflation. One of these is to increase interest rates, however savings accounts are still offering interest rates that are below the rate of inflation.
Over the long term, this gap can mean your savings lose value in ‘real terms’. Whilst your account may grow as interest is added, inflation means that it buys less when you come to spend it. For short-term savings, inflation will have little affect but if you’re saving over several years, it can add up.
Are you getting the most out of your savings?
Here are some things you can do to give savings a boost:
1. Take advantage of offers to move your account
Some banks and building societies offer new customers incentives to move. Taking advantage of these could give your savings a boost.
These incentives could be a one-off deposit to your account or a higher rate of interest for a defined period. Even a small incentive can help you keep up with inflation. Keep an eye out for offers that you’re eligible for. While switching accounts can seem like a chore, it’s often a simple process and banks can even transfer direct debits and standing orders for you.
2. Shop around for the best interest rate
Interest rates might be low across all providers, but there are still differences. Shopping around to find the best interest rate you can access can help you to close the gap between how much your savings are growing and inflation. As with the above, it’s often easy to switch your account.
3. Consider savings accounts with restrictions
Some savings accounts will offer a higher rate of interest but come with restrictions. This may include how much you can put into the account each month, or your savings being locked away for a defined period.
You should assess whether these types of accounts match your goals and would still leave you with an emergency fund. If they do, they can give your savings a welcome boost that could help you bridge the gap.
Should I consider investing?
As well as reviewing your savings, you may also consider whether investing is right for you.
It’s important to stress that investing exposes your money to risk and volatility. However, if you’re saving over a long period, it can provide the potential for growth that’s higher than inflation, enabling you to preserve your spending power.
If you have funds in an accessible savings account and your saving objective is more than five years away, investing the surplus savings may be right for you.
While all investments do carry some risk, the level of risk varies. So, it’s important to weigh up how much risk is appropriate for you. We’re here to help you understand investment risk and create a risk profile that matches your situation and goals. We’ll consider areas like your other assets and general attitude to risk.
Get in touch
If you’d like to discuss whether investing is right for you, please get in touch or visit our offices in Bradford on Avon, to see how we can help.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Equity investments do not afford the same capital security as deposit accounts. Your capital is at risk.
The value of your investment (and income from them) 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.
