Call us on 0330 127 2006
So, what is inflation? – Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase as reported in the Consumer Price Index (CPI). Put simply, Inflation is to do with how much your money can buy.

For example, if we look at the cost of a pint of pasteurised milk. In 1982 a pint of milk was 20p, where as in 2012 in was 46p – that’s an increase of 130% over 30 years, all thanks to inflation.

As inflation rises, purchasing power decreases, fixed-asset values are affected, companies adjust their pricing of goods and services and financial markets react. Inflation, to one degree or another, is a fact of life. Consumers, business and investors are all impacted by any upward trend in prices.

In order for your money to be ‘worth’ the same amount, you will need the income you receive (in wages, pensions, etc) to increase by at least the rate of inflation each year. Similarly, any ‘stored’ wealth you have, such as your home (if you own it), or money you have invested *, will need to grow by at least the rate of inflation, too. If it doesn’t your money will be losing value in real terms.

Savings accounts are also subject to interest rates. If the rate of inflation is high and you are receiving a low interest rate, you could find it difficult, or even impossible, to beat inflation.

In a survey of conducted by Oaksmore ISA *; 41% of people interviewed said they were prepared to leave their savings earning little or no interest in a bank account rather than have them in a specific investment.

So why is this a problem? – well when it comes to your savings, inflation erodes the purchasing power of your money.

According to, just 1% of all savings accounts in the market right now are paying enough interest to beat inflation. Currently 99% of standard savings accounts are failing to match the current level of inflation – with less than a handful able to offer a return of 2.7% of more.

There are just 4 accounts (based on a £10,000 deposit) that can match or beat the current rate of inflation. Within that, there are just 2 fixed bonds that beat 2.7%, which represents less than a 1% share of the standard savings market.

This means savers who lock their money up for a rainy day are effectively losing out because the cost of living is outstripping how much they’re earning on their savings.

Another thing to consider is how much of your interest you’re taxed before you ever receive it. From April 2016, you can earn up to £1,000 in interest each year tax-free (if you are a basic rate taxpayer). If you earn over this you will need to pay tax, which further reduces the value of your savings.

In order to just equal inflation, you’d need to earn the following rate of interest on your savings account;

  Equivalent gross savings rate needed to equal the rate of inflation….
Inflation Rate Basic Rate Taxpayer Higher Rate Taxpayer Additional Rate Taxpayer
1.00% 1.25% 1.67% 1.82%
1.50% 1.88% 2.50% 2.73%
2.00% 2.50% 3.34% 3.64%
2.50% 3.13% 4.17% 4.55%
3.00% 3.75% 5.00% 5.45%
3.50% 4.38% 5.84% 6.36%
4.00% 5.00% 6.67% 7.27%

So, what can you do to try and inflation-proof your savings?

  • Use your cash ISA allowance – to allow you to save tax free.
  • Review your savings rate regularly – to make sure your getting the most out of your money
  • Consider using other investments, such as a Stocks & Shares ISA, General Investment Account or Investment Bond to achieve capital growth above that of inflation.
  • Seek Financial Advice from a professional Financial Adviser.

The value of investments and income from them can go down. You may not get back the original amount invested.

Past performance is not a reliable indicator of future performance.

* Source: Professional Paraplanner (16/09/2018)

The guidance provided within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.

Cherry May Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Cherry May Financial Planning Ltd is registered in England and Wales under reference 10260896. Registered office address: Pynes Hill Business Centre, Pynes Hill, Exeter, Devon, EX2 5JL

The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on their website at