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Your Savings and Inflation – What does it all mean?

We all want to have savings behind us but high inflation can cause you problems and this is particularly true when your bank is offering you a low-interest rate.

Inflation – what is it?

Inflation has a direct impact on how much your money can by. When you consider the cost of a bottle of milk, the chances are it will be more expensive now than it was ten years ago and that is known as inflation.

The Rate of Inflation

If you are still unsure as to what inflation is, then it is the changes seen in the price of goods and services. If there are changes across the board then you can see whether inflation is going up or down. In the UK, there are two main inflation rates known as the Consumer Price Index and the Retail Price Index. Both measure inflation in a different way because they measure different categories of goods and services and calculate them in different ways.

How does inflation affect your savings?

For your money to be worth exactly the same every single year, then you will need your money to grow at the same rate as inflation. If you have any stored wealth such as property or money that you have invested then this will also need to grow at the same rate as inflation. If this does not happen then it means that you run the risk your money not being worth as much as it once did.

When you consider savings accounts, they are subject to interest rates. Therefore, if the inflation rate is high and you are receiving a low-interest rate then this will mean that you are either mirroring the rate of inflation or going beyond it.

Regularly review your savings rate

The easiest way to beat inflation is to keep your savings in a high-interest account. If you have your money in an old savings account, especially those that came with an introductory offer or rate, then there is every chance that you are not making the most of your money. Should you choose to continuously review your account as well as the market place, it will make it possible for you to make smarter decisions regarding your money. Through annual reviews of interest rates, you can move your money from low return accounts and give your money a better chance of beating inflation.

 

 

 

Lewis Samuel / CI-ASSOCIATES

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