An Inflation-Beating Way To Save

For most of us, money doesn’t come easily. It takes a lot of hard work to build up savings, so how do you make those savings work hard for you?

You need to consider all the options available and extract the most from your hard-earned cash.

A stocks and shares ISA might be the answer. It may outpace inflation and achieve positive returns, tax efficiently.

Inflation explained

Put simply, inflation is when things become more expensive. For example, in 1980, a pint of milk cost around 17p, now it averages 44p.

If your salary doesn’t increase in line with general price rises, which after many years of austerity is commonplace, your buying power decreases. In the same way, inflation devalues your savings if they are left in the bank over the medium to long term.

To achieve actual growth, your savings need to keep pace with everything else. The UK government has an inflation target of 2% this year, which means you would need to receive the same in interest to maintain your purchasing power. In reality, it is highly likely you are earning less than 0.4% on your average high street bank or building society account.

This means in ten years’ time, the buying power of every £1,000 you have saved will only be £825.10, meaning your money won’t stretch as far. That said, it is vital to have access to some cash to fund emergencies or unexpected expenses.

So, how can you do this in an inflation-beating way?  

Invest and protect

Investing is a good means of protecting your money from inflation, as your returns aren’t tied to an interest rate.

 This does mean taking a risk – your fund could go down as well as up and you could get back less than you invested – but it may provide higher returns than you receive from a savings account and even outpace inflation.

Many studies reviewing historic investment data have concluded that the longer you remain invested, the more likely you are to see positive growth.

Whilst past performance is no guide to future returns, if you had invested in the UK’s FTSE 100 for ten years at any point between 1986 and August 2019, you had an 89% chance of making a gain. The index consistently exceeded the rate of inflation, returning an average of 7.08% a year during this period, with re-invested dividends. In reality, however, splitting your investment over a vast range of sectors, countries and asset classes, reduces volatility and could enhance overall returns, which is where we can help.

Stocks and shares ISAs not only give your money a chance to outpace inflation, but also remove UK tax from the equation. Currently, you can invest up to £20,000 annually (2020/21), in lump sums or regular contributions, although you can’t pay into more than one account in a tax year.

To find out more about this way to build on your savings, contact me on (01246) 298181 or email: cathy.smith@belmayne-ifa.com