Rising inflation: is this bad news for savers?

Rising inflation: is this bad news for savers?
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Inflation is rising to levels we haven’t seen for a long time. The prices of everyday goods and services are increasing. But it can be hard to know what this means for the money you’re not spending each month. Is rising inflation bad news for savers? Read on to find out.

How much is inflation rising?

On 15 September, the Office of National Statistics (ONS) reported that the rate of inflation, measured by the Consumer Prices Index (CPI), is now 3.2% (August 2020 to August 2021). This is above predictions that estimated inflation would be around 2.9% and an increase of 2% since July. It is also the largest ever rise since the ONS began reporting in 1997.

The CPI is designed to track changes in prices over time. It is calculated by looking at price changes for thousands of everyday goods and services, like basic food items, haircuts and cinema tickets.

The latest figures show these things are costing an average of 3.2% more than they did a year ago. This is a significant rise.

Is rising inflation bad news for savers?

Rising inflation and record low interest rates are not a good combination for those looking to hold cash savings.

Those looking to save money in bank accounts are essentially losing money. If your savings account isn’t offering the same interest rates as inflation – which is probably the case at the moment – your money is losing value every day it stays in that account.

Currently, not one high street bank is offering rates that either match or beat the rate of inflation.

This means that cash savers might want to re-examine their tactics if they want to get the most out of their money.

What can savers do to protect themselves?

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says that just because you can’t beat inflation in a normal savings account right now, doesn’t mean you should give up.

Hargreaves Lansdown’s research found that 42% of people are not switching their savings accounts because they think rates are too low to bother with. But Coles believes there’s a “world of difference” between a miserable easy access account paying 0.01% from a high street bank and the best on the market – which is offering around 65 times the interest.

If you have a sufficient emergency fund available and don’t plan on using the money in the short term, you could also consider investing some of your cash savings instead.

For many people, investing can be a great way to build wealth and save for retirement. Returns from the stock market probably stand a better chance of beating inflation rates than the interest on a standard cash savings account too.

If you want to start investing, one of the easiest and cheapest ways to trade shares is with an online share dealing account.

Simply put, share dealing is just the buying and selling of shares. You buy shares when you want to own part of a company. Then you sell them when you want to take your money out or invest in a different company instead.

While investing can help you build significant wealth, it involves risk. It’s important to remember that the value of your investments can fall as well as rise. Here are some things to consider before you start investing.

4 iron-clad rules for saving money on everything

Our Editor Sam Robson has been on a personal cost-cutting mission for years – and it’s time to share his wisdom.

Check out his choicest saving tips and tricks in this free report, “Sam’s 4 Iron-Clad Rules For Saving Money On Everything”.

Just enter your email below for instant access to your free copy.

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