How to protect your money from inflation

Inflation never went away, and now it’s certainly back. The Consumer Prices Index measure of inflation rose to 3.5% in September, according to the latest data from the Office for National Statistics.

The main factors driving the rise were the hikes in the price of petrol, diesel and gas. These may be due to the troubles in the Middle East rather than problems within the UK economy, but the fact remains, your money buys less, and this is something worth considering when reviewing your finances.

If inflation continues to rise, protecting your money from inflation becomes increasingly important, with the effects extending beyond your next trip to the filling station.

Inflation impacts your mortgage

Raising the bank Rate is the Bank of England’s main weapon to combat inflation. Markets now expect the Bank of England to raise interest rates over the next 18 months. Lenders are already pricing in the increases, meaning that if you are ready to buy or are remortgaging, it may be worthwhile reviewing the options available and considering whether securing a rate in advance would be suitable for your circumstances.

Remember, securing a competitive rate now won’t stop you from getting a more suitable deal if the market improves before completion.

On a suitable deal that won’t finish for a while? Consider making overpayments to reduce your outstanding balance and, in turn, the amount of interest you will pay when you eventually move to a new mortgage deal

Inflation impacts your savings

Inflation makes saving less rewarding, as the purchasing power, the true value of your savings falls.

But there could be a silver lining. If the Bank Rate is increased to help control inflation, banks and building societies may increase the interest rates available on some savings accounts.

You need to shop around. Many of the big high street names offer easy access accounts that might tempt you with convenience but actually offer rates below inflation. If you’re not earning a rate equal to inflation, your money will be losing value in real terms.

Consider reviewing rates available across the market, as there may be opportunities to earn over 5% on savings held in a one-year fixed-term account.

But don’t forget the effect of tax on your savings income, which pulls the effective rate on your savings back down. If your returns are going to exceed the personal savings allowance, if could be time to look at protecting your savings with a Cash ISA.

Inflation impacts your pension

If you’re still years from retirement, and in a workplace pension scheme, inflation might not be a problem. By careful investment in stocks and shares, your pension scheme has plenty of potential to outstrip inflation.

If you’re approaching retirement, you might want to check that your pension is still on track. Some funds gradually move your money into lower-risk, but lower-return investments as you approach retirement. This might not suit your plans especially if you plan to work for longer, or to keep your pension invested in retirement.

Whatever your situation, check that your pension is set to provide a large enough pot.

Remember, inflation means that the pension that seems generous the day you retire might seem a lot less comfortable in 25 years’ time.

You might want to look at what an annuity could offer. A guaranteed income for life is appealing and rates have improved recently. They could go higher still if inflation forces the Bank Rate to rise.

Does inflation impact your investments?

Inflation can erode the purchasing power of cash. Investing, where your money is used to buy something might provide some protection, especially if your holdings are capable of long-term growth.

With a sound investment strategy and a diversified portfolio designed around your objectives, time horizon and appetite for risk, inflation might not be a problem.

Getting help preparing for inflation

Inflation, and rising interest rates can disrupt all of your financial plans. Expert advice could be valuable, especially if it can be supported by detailed cash flow analysis.

This could help to remove the guesswork, show just how your current arrangements will work, and where and how you can prepare from the effects of inflation.

Taking the time to understand your options could help you protect your money from inflation while keeping your wider financial plans on track.

At Continuum we can provide the advice, forecast and calculations you need. Contact us today.

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This article is intended for general guidance only and is based on the opinion of Continuum it does not constitute financial advice. Individual circumstances vary, and you should consider seeking advice from a regulated financial adviser before making any financial decisions.

The value and returns of an investment are not guaranteed, investors may lose some or all of their investment. When investing Capital is at risk.

Investors in ISAs do not pay any personal tax on income or gains. Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances.

The Financial Conduct Authority does not regulate taxation advice, deposit accounts or cashflow modelling.

A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. Pension savings are at risk of being eroded by inflation.

Equity based investments do not afford the same capital security as deposit accounts.

Your home may be repossessed if you do not keep up repayments on your mortgage.