Can you inflation-proof your savings?

With prices officially rising by 4.2%, is there a way to protect your savings from inflation? Karl Talbot takes a look at your options.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Piggy bank being carried by balloon

Image source: Getty Images

Inflation continues to be a hot topic, with prices now rising by 4.2% according to the latest ONS figures. So if you have savings, is it possible to inflation-proof your cash? Here’s the lowdown on what you can do.


How much is inflation rising? 

The latest Consumer Price Index (CPI), using data from October 2021, suggests inflation stands at 4.2%. This means that prices of goods and services are now rising at the fastest rate in almost 10 years. To put this into context, the government has an annual inflation target of 2%.

While the CPI is not considered a perfect measure of inflation, it is widely accepted that the value of our money is decreasing at a worrying rate. Plus, it’s worth bearing in mind that inflation may now be running even higher than 4.2% given that statistics for November won’t be revealed until 15 December.

The Bank of England has the most power to curb inflation by increasing the cost of borrowing. However, the UK’s central bank has so far resisted calls to raise its base rate from its record low of 0.1%. As a result, it seems that high inflation is here to stay, despite the BoE previously describing the inflation seen in 2021 as ‘transitory.’

Why is inflation a cause for concern for savers?

Growing inflation means the value of our cash is plummeting. This may be good news for borrowers, including those with long fixed-term mortgages, as the value of their debt is essentially decreasing. For savers, however, it’s a totally different story.

High inflation means that in order to protect the value of your cash, you must find a way of growing your savings at a rate that matches inflation. If you’re unable to do this, then the value of your savings declines.

In simple terms, this means your savings will buy fewer goods or services from one year to the next (assuming you don’t add anything to your savings pot).


How can you inflation-proof your savings?

There is sadly no way of keeping up with the current rate of inflation through traditional savings accounts. That’s because no savings account pays anything close to 4.2%.

That being said, if you do have cash stashed in a savings account, it is worth searching for an account that pays a decent rate of interest (taking into account the current low-interest environment). This is because having your cash sitting in an account paying a decent interest rate is far better than earning next to nothing.

In other words, while your cash may not be keeping up with inflation, stashing your cash in a decent account will at least limit the inflationary impact.

Easy access options

In terms of easy access offerings, right now you can earn 0.75% AER variable via Aldermore as long as you’re happy to make no more than two withdrawals a year. If not, then Investec has an account paying a slightly lower 0.71% AER variable. 

Remember, the interest rates on these accounts are variable, so can change at any time. For more options, see our list of top-rated easy access savings accounts.

Fixed savings options

To boost the interest rate on your cash, you may wish to explore locking away your money. However, if you do this, remember that you won’t be able to access your savings for the duration of the fixed term.

Right now, the highest one-year fixed account pays 1.37% AER fixed via Zopa.

Meanwhile, the highest two-year fixed account is from SmartSave Bank, which pays 1.64% AER fixed. If you’re happy to lock away cash for longer then United Trust Bank pays 1.87% AER fixed for three years, or 2.10% AER fixed for five years.

For more options, see our list of top-rated fixed savings accounts.

How else can you protect your cash?

Some individuals looking to protect their savings from inflation may choose to invest. That’s because stock markets typically outperform inflation in the long run, though there are no guarantees.

However, it’s important to recognise that investing and saving are totally different beasts. That’s because when you invest, all of your capital is at risk. As a result, it’s far from a sure-fire way of beating inflation. 

However, If you are keen to explore this option, then it could help to read The Motley Fool’s investing basics.

Another method savers may use to beat inflation is to buy assets. Popular choices include commodities such as precious metals like gold. Others may choose to invest in property given that house prices have grown by more than 10% in 2021 alone. For more on this, see our article that explores whether property is the ultimate inflation hedge.

Keen to read more about inflation? See our guide to inflation that explains how rising prices can impact you.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »