Savings warning: Inflation ‘erodes the value’ of your money – how to protect your cash | Personal Finance | Finance


Recently, inflation reached an over decade long high of nine percent with many believing it could reach ten percent later in the year. Decisions by the Bank of England to hike the base rate have been welcomed but savings accounts have yet to receive a rate boost which could beat the inflation increase. As a result, savers have been unable to acquire the desired interest they want and are looking for ways to protect their cash.

Speaking exclusively to, senior financial planner Zoe Daglass from Vanguard shared her predictions for how the economy will look in the months and how savers should react.

Ms Daglass said: “Amid accelerating prices, financial markets are pricing in a series of further interest rate increases from the Bank of England in the next year.

“The Bank of England will likely pause it’s hiking cycle later in the year to allow the economy space to breathe, especially if inflation falls sharply back towards target after peaking in the final quarter of this year.

“All in all, this implies a slightly shallower path for UK interest rate rises than currently assumed by the market. In such an uncertain macroeconomic environment, it would not be surprising if we experienced bouts of volatility in financial markets in the months ahead.”

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Specifically discussing inflation, the finance expert discussed the best and easiest ways savers can mitigate the impact of inflation on their cash.

She added: “Inflation erodes the value of your cash savings over time, which is a key reason why investors invest in the first place – so that they can potentially earn returns in excess of inflation over time.

“With that in mind, provided investors are holding sufficient cash for an emergency, they should consider investing. Those who are nervous about market volatility could split the investment into a number of tranches over six months or so.”

There are a variety of products with banks and building societies which people can invest in, however some are more preferable than others.


“However, research shows that over the longer term the diversification benefits of bonds still stand. In fact, the longer a downturn, the stronger the relationship tends to be.”

On top of this, Ms Daglass outlined the ways in which savers and investors can mitigate the damage of inflation on their finances.

She said: “Now more than ever, it’s important for long-term investors to remain disciplined – keep your strategic goals in mind, tune out the noise and stay the course.

“It’s premature to think what we’re seeing now will call for a dramatic shift in approach, because high inflation would need to be sustained for several years to have a longer-lasting and more damaging effect.

“Even if it proves more stubborn than we are forecasting, it isn’t worth straying too far from shares and bonds because the investment alternatives are underwhelming.

“Research found that (over a one-year period) gold and commodities only offered a better inflation hedge than shares if you had the stomach for living through far greater price swings and potential losses.

“What’s more, shares have been proven to have the best chance of achieving a positive real return at a lower risk level over five, 10 and 20 years.”




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