Understanding the Impact Inflation can have on Planning
Inflation is the enemy of all financial planning. It eats away at your savings and investments, reducing what they will buy in future.
Figures published by the Office for National Statistics show the Retail Price Index (RPI) annual growth rate for April 2020 was 1.5%. As the UK lockdown took hold and people naturally were spending less as they could not go out this figure continued to fall with the exception of July, when the country re-opened for a short period.
Reviewing what is currently on offer by a research tool such as Moneyfacts you will find that the type of interest rate for easy access accounts, the most common form of saving, has fallen as low as 0.5% with many major high street banks and building societies.
The typical rate for one-year fixed-rate bonds has fallen to a similar figure, highlighting that analysts do not see much of a change in interest rates over the short term. Even looking to tie your money up for a 2- or 3-year period, would only see rates of around 0.65% and 0.75% respectively.
At the moment if you leave your savings on deposit they won’t grow by much. As the cost-of-living climbs, your purchasing power decreases.
What is evident, is that the Covid crisis has impacted on the economic landscape and things can change very quickly. It is therefore prudent to regularly review where your cash is held. It is also important to review your goals and your timescales for spending your money and re-setting your expectations accordingly.
The other option is to consider investing in areas other than cash, which given there will be some risk involved, should be discussed with a professional adviser before committing to any action.
Source: https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czbh/mm23
https://moneyfacts.co.uk/savings-accounts/
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Author: Helen Loder
Co-Director of Sevenoaks Mums