5 Tips to Protect Your Savings Against Inflation [INFOGRAPHIC]
The ever-increasing cost of living has seen the value of savings fall, but you can fight back with some financial planning and these five inflation-busting tips.
A bit of careful planning will give you the peace of mind you need to make sure your savings are safe. Here are our top five inflation-busting tips...
Tip one: Choose your ISA carefully
- Most cash ISA rates do not keep up with CPI, the index that measures inflation. However, there are a handful that pay more, so be sure to keep an eye on best buy tables.
- If you are nearing retirement, a cash ISA is a good safe haven to consider.
Tip two: Go for gilts
- If you are five to ten years from retirement you could use your full £11,520 stocks and shares allowance to buy inflation-linked gilts.
- These are linked to RPI, which has averaged around 0.7% higher than CPI over the past 20 years.
Tip three: Get your share
- Returns on equities can beat inflation when you take into account the value of reinvested dividends.
- Barclays' 2011 Equity Gilt Study calculated £100 invested in equities at the end of 1899 would be worth just £180 in real terms today without the reinvestment of dividend income; with reinvestment, the same portfolio would have grown to £24,133.
Tip four: Property/Real Estate
- Investing in property both residential and commercial has been a good hedge against inflation over the long term.
- Investing in Buy to Let property has been a rewarding experience for many but caution and experience are essential as it can be a complex process.
- A collective investment or fund may be a wiser idea - some funds invest in physical property and others in property companies. You can hold the funds in an ISA or pension account.
Tip five: Become a bank
- Peer-to-peer websites which unite lenders with borrowers can earn those with money to invest up to 8% in return.
- Of course lending to others does carry a risk. Earn 8.9% with Funding Circle, 6.2% with Ratesetter or 5.4% after a 1% fee with Zopa.
- Spread your risk by lending a little with each one.
- As always, it makes sense to speak with a qualified financial planner who can help you build a personalised plan to mitigate the effects of inflation on your investments.