How can I protect my money from inflation?

In the current economic climate, rising inflation is a concern for people with savings and investments.

2 min read

Rising inflation could mean you’re potentially earning less money due to your hard-earned cash becoming worth less as time goes by. The negative impact of inflation upon the real value of an investor’s portfolio will be a concern, particularly for the older generation who may not have enough investments, or who may live mostly or entirely off their savings and pensions. It can be even worse if they suffer a decrease in income at the same time as a loss of value on their assets.

If you’re not yet at that stage, it’s still important to consider how inflation will affect you and your investments. It’s important for everyone to protect cash from rising inflation by ensuring you are getting as much interest as you can.

Questions to ask which may help provide some protection for your cash from inflation

1) Is the amount you have in cash appropriate for your circumstances?

The amount of cash savings you have should match your circumstances and income level. Since we don’t know what life will bring next, we need to be able to take care of ourselves and our families without having to resort to or depend on credit cards or loans from others.

It’s important to build an emergency fund and you should aim to have at least 3-6 months’ worth of expenses set aside and easily accessible should you need it.

2) Should you consider investing some of your cash?

As a general rule, the answer to this question will depend on your cash flow needs and investment preferences. But you should consider investing some of your money, even though this may seem counterintuitive. Building a diversified investment portfolio rather than putting all your eggs into one basket is likely to suit most people’s risk profiles, especially if it is sitting alongside the money you have in cash.

While past performance is no guarantee of future performance, investing some of your cash savings may be worth considering. If you’re saving for a long-term goal, like retirement, then it’s really important to factor in inflation. If you don’t, it could erode the value of your money and may put your plans for the future at risk.

3) Have you maximised your pension savings in recent years?

How much money you get in retirement depends on how much you contribute, and when. The bigger your retirement pot is, the more you’ll get each year to help pay for your living expenses.

Obtaining professional financial advice is important when considering your retirement to make sure you’re investing wisely, and so that you have a realistic and fluid plan to ensure your retirement savings last as long as they can. To give yourself the best chance of a comfortable retirement, you need to make sure as much as possible goes into your workplace or personal pensions from as early as possible.

It is important to maximise pension contributions to receive tax relief as this helps you save more money for your retirement goals. Pensions are still a very tax-efficient investment for the majority of people, with tax relief on contributions, as well as tax-free growth within the fund.

4) Have you made use of your ISA allowance this year, and those of your family

Making use of your ISA allowance each year, can also provide you with an opportunity to make tax-efficient investments. Generally, UK residents aged 18 and over can invest £20,000 per annum into ISAs; those under 18 can have £9,000 invested on their behalf, each year. Those aged 16 or over can invest £20,000 per annum into a Cash ISA.

ISAs grow tax-efficiently, whether invested in cash or other asset classes like stocks and shares, and the long-term effects of this tax-efficient growth can be significant.

Few savers will be untouched by inflation in the near future, but by employing some simple strategies, you may be able to mitigate some of the effects of inflation by making sure your money is working as hard as possible to earn inflation-beating returns.

Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content of this article was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may impact on the accuracy of the article.

The value of your investment(s) and the income derived from it, can go down as well as up and you may not get back the full amount you invested.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by interest rates at the time you take your benefits.