Savings Accounts Don’t Beat Inflation—How You Can Protect Your Money

16 September, 2021 by Denzil Otieno 5 mins read Category:  Money Personal Finance

Britain’s hard-pressed savers must risk investing their nest eggs in the stock market or see their purchasing power erode even faster as inflation rises to 3.2 per cent.

There are no widely available savings accounts that can match the diminishing power of the consumer price index, which climbed at its highest rate on record last month. All cash savings accounts will now be depleted in real terms.

Most high-street bank accounts pay as low as 0.01 per cent in interest, which yields just £5 per year on a £50,000 balance. Even those who snagged the most okay prices are facing hundreds of pounds in losses.

Atom Bank is the best-paying one-year savings account on the market, at 1.5 pc—providing only £76 in interest off a £5,000 average pot over a year. 

Investing is the only way to keep up with, or perhaps surpass, inflation. This might be a scary idea for cautious savers who are used to putting their capital in cash savings accounts.

Using Telegraph Money, you can learn how to safeguard your money, where the possibilities are, and what to avoid.

Where To Invest Your Cash

Tilney Investment Management’s Jason Hollands stated that it was more vital than ever to invest cash in stocks and shares since low-interest rates gave little-to-no protection.

He went on to say that fighting inflation would be on everyone’s mind and that one couldn’t accomplish it by investing in cash. While equities might be volatile, the London market as a whole delivers a dividend return of about 3.7 per cent.

The hyped dividend-paid funds of Mr Holland include TB Evenlode Income and Threadneedle UK Equity Income, which he claimed to have given some stability in an inflationary situation. The funds returned 22 and 16 BPC in the last three years, respectively, while the British market generated only 12 BPC as assessed by the FTSE All-Share index.

Nicholas Hyett of Hargreaves Lansdown broker also highlighted that big household names could shield growing pricing.

He continued by saying that companies like Coca Cola, Unilever, and Reckitt Benckiser may resist high inflation by increasing the coke can’t price by a centimetre that the customer must have noticed. These companies can thus change their prices to compensate for inflation.

Luxury stores are rigid when prices rise, and wealthy consumers benefit from asset price inflation. Enterprises like LVMH Moët Louis Vuitton, Richemont and Kering, whose equity prices rise this year correspondingly from 23 pc, 17 pc and 9 pc, are allowed to travel hard times.

Gold is an Option 

Investing in gold as a traditional safeguard against increasing costs is an alternative to preserve your funds against inflation.

Mr Hollands added that one of the simplest forms of exposure is through cars, such as the Invesco Physical Gold ETC.

Renewable infrastructure trust can also assist investment companies to overcome inflation by adapting long-term contracts to meet growing costs in their portfolios.

Mr Hollands referred to HICL Infrastructure and International Public Partnerships, which, however, traded at a premium of 13pc and 16pc, both of which are over 4pc dividend rates. He noted that they are not inexpensive as they offer excellent returns and very predictable streams.

Mr Hyett stated that utilities should make a good pick, especially as the long-term advantage of increasing electric vehicle driving is that their revenues are frequently governed by inflation.

The rising inflation will probably do the greatest damage to bond investors as it undermines the actual value of their generally fixed yields. Mr Hyett has pointed out as an option that indexed bonds will increase the interest paid according to inflation.

Furthermore, Mr Hollands cautioned that growing costs might adversely influence growth investment in such industries as technology.

As they expect the future worth of the firm to increase, investors frequently pay a premium price. But the value of today’s money is created by inflation.

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