Long term savers finally got some good news this month as the consumer price index, which measures inflation, fell from 4.2 to 3.6 per cent. While this is a 14 month low it is still well above the Government’s target of 2 per cent, and along with the country’s other financial woes means that people in general have much less to spend.
Higher rates of inflation can be a real headache, particularly for higher rate tax payers, who would currently need a savings account paying more than 5.99 per cent annually to stop their cash from losing any value, a rate which does not currently exist.
If not properly accounted for, inflation can have a damning effect on an individual’s savings, for example over a five year period, with average interest and 20 per cent tax, £10,000 would dwindle to have the equivalent spending power of just £9,190.
Beating inflation is an uphill struggle, but with the right advice its effects can be minimised.
For basic rate taxpayers there are a few savings accounts on the market with rates high enough to counteract inflation (around 4.5 per cent), however, these will involve tying the money up for at least three years with penalties for early withdrawal.
With instant access to the savings it’s possible to get a rate of around 3 per cent, which will still go some way to prevent the money losing its value.
Energy prices have soared in recent years, with a 19 per cent increase for gas and 13 per cent for electricity in the past 12 months alone. It is estimated that around half of the country could save hundreds of pounds by switching tariffs.
Comparison sites like uSwitch can help with identifying the best deal, it may also be worth seeking advice about a collective purchase scheme that is being coordinated by consumer group Which?
Food and Drink
The price of food and drink, particularly meat, has shot up faster than inflation over the past 12 months, cutting the cost of your weekly shop can be an excellent way to beat inflation.
All it takes is a little bit of planning, comparing the costs of items in different stores, learning which food is in season and planning meals in advance to avoid impulse buying can all lead to decent savings..