How to save money as inflation rises
22nd November 2011
The cost of living is spiralling out of control as thousands of UK households struggle to cope with the squeeze on personal finances.
Whilst inflation rates recently decreased by 0.2%, the Consumer Price index (CPI) still remained at a staggering 5% during October.
This is well above the Bank of England target rate of 2% and it is having a significant impact on the nation’s finances.
The CPI rose to 5.2% in September, prompted by the energy price hikes. However, the Bank of England believes that inflation is “likely to fall back sharply through 2012 as the contributions of VAT, energy and import prices decline.” Until then, savers will continue to lose out.
Inflation reduces the spending power for savers and shrinks the ‘real’ value of their saving pot. To make matters worse, savers have also been hit with the base rate remaining at an all time historic low for 33 consecutive months. Whilst there are very few financial products that can help you beat inflation, here are just some of the ways you could save money as inflation creeps up.
Inflation linked accounts
Almost anyone with an inflation-linked savings account can benefit from an increased rate of inflation. Those with an NS&1 Index linked Certificate, for example, can now see their returns increasing. However, the returns might not be as much they would have been on a fixed term financial product. Savers currently need to see a 6.25% return before tax, in order to beat inflation.
Income protection
It might not beat inflation but it could help safeguard your finances should you become unemployed. Income protection is typically designed to help make repayments on loans or credit cards in case of redundancy, sickness or in the event of an accident which prevents you from earning.
Cash ISA
It’s more important than ever to make use of a tax free savings account. An ISA account allows savers to keep up to £10,680 (until April 2012) without paying the basic tax rate of 20%.
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