Decade high inflation set to drown savers: Can you keep your cash afloat?

Investment expert on the high annual inflation rate

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Inflation stands at 4.2 percent now according to the October 2021 Consumer Price Index data, more than double the annual government inflation target. With interest rates maintaining their position at an all time low it seems that savers may have to sit back and watch their money be swallowed by inflation over time.

Whenever saving interest rates are below a country’s inflation rate it means that savers are losing value when keeping their riches in cash. 

As 2021 comes to a close, it has not been the most financially beneficial year for anyone to begin with, and the expectation of a probable five percent inflation rate next year seems to be a doomed outlook for many. 

However, for those who have debts and bills such as mortgages, the skyrocketing inflation is good news as while their savings lose value, so do their debts. said homeowners should work to move onto a fixed rate before the Bank of England base rate rises, and borrowers should be wary that many of their fixed rate deals may be ending soon.

Mortgages are one of the single biggest bills any household pays and ensuring this is at the lowest possible rate could see many financially better off, saving potential hundreds every month.

Additionally, high inflation can often leave cash savers in the dust as even having money in an account with the highest interest rate on the market will still not come close to keeping up with inflation.

Because of this, savers are advised to find alternative saving methods to ensure that their money retains its original value and has the potential to grow further like it would in times of low inflation and high interest rates.

Pensions Director at Aegon, Steven Cameron, commented on the potential effects of cost of living rises on consumers: “Forecasts suggest inflation will average around four percent in 2022, peaking at close to five percent, driven by the re-opening of economies around the world and the surging global demand for energy.

“Rising inflation causes a squeeze in the cost of living and is particularly damaging to purchasing power if wages don’t keep pace. 

“It also poses a particular risk for those who hold large sums of money in cash savings and can disproportionately affect retirees living off a fixed income.

“Remember, if your savings are earning next to no interest but inflation is at  four percent, that means you’ll be able to buy four percent less with your savings a year from now. And after five years, you’d be able to purchase 18 percent less.”

It is worth noting even though the near future seems disastrous, having savings earning as much interest as possible, even if it’s one third of the inflation rate, will still be more beneficial than stocking it under a mattress., founded by Martin Lewis, said at the moment, Aldermore and Investec are top of the market when it comes to easy-access savings accounts with 0.75 percent and 0.71 percent interest respectively.

Additionally fixed savings accounts, which generally have higher interest rates than easy-access accounts, have a top range of 1.39 percent for one year offered by Masthaven Bank.

SmartSave Bank is also recommended by with its 1.64 percent interest rate for two years and UBL UK account opened via Raisin has a 1.82 percent interest rate for three years and offers a £50 bonus. 

While savings is certainly a popular route for traditionally money-savvy individuals, a growing popular alternative is investing. 

With every investment there is capital at risk and investors are advised to never invest more than they can afford to lose. 

But despite all the risks, the potential reward can far outweigh inflation, with stock markets typically outperforming it historically. 

Many avoid this option due to the inherent risk and prefer to know that when saving their money there’s no chance of losing it. 

However, whether it be assets, stocks, property or riskier alternatives like cryptocurrencies, investing offers the chance for one to create sustainable, long-term wealth of extraordinary proportions that would never come to fruition with normal savings accounts. 

Mr Cameron advised: “It might be worth considering if it’s a good time to think about investing any cash you’re unlikely to need short term, perhaps in a stocks and shares ISA, although you should remember the value of an investment may go down as well as up.”

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