We’ve all felt the effects of the rising cost of living lately, but the impact on our finances will potentially be more far-reaching than higher food and petrol bills.
Inflation, which measures the rate by which the cost of living is rising by, climbed to a 30-month high of 4.5% in April 2011. According to the Office for Budget Responsibility (OBR), inflation is likely to remain between 4-5% for the rest of 2011; and will only fall under the Bank of England’s 2% target in 2013. Increasing prices are therefore something we’ll have to get used to.
And this could be having a negative effect on your finances. With Bank of England Base Rate having remained at historic low levels for over two years – and experts predicting it will be some time before they return to the high levels of 2008 – the value of your savings could be reducing.
Say you had £10,000 stored in a deposit account at an example rate of 0.5% gross, after a year it would only have gained £40 in interest after tax for a Basic Rate Taxpayer (BRT) and £30 after tax for a Higher Rate Taxpayer (HRT). When you then factor in inflation of 4.5%, the real value of that £10,000 would have eroded to £9,588 (BRT) and £9,578 (HRT) after only one year. Over time, the effects of inflation could have an even further negative impact.
To truly grow in value, your savings need to be earning a rate of interest which – after tax – is above the rate of inflation. Yet according to research by Moneyfacts*, there were only eight savings accounts available in March 2011 which beat inflation – all of which were ISAs. If you have a nest egg of savings in a low-paying deposit account, it could be losing value and cause you to fail to achieve your financial aspirations.
Deposit-based accounts are still the best place for storing money you might require access to in the short-term, for example to pay an unexpected bill, but your medium to longer-term needs could be potentially better achieved elsewhere.
Alternative options include investing your money, for example into an Investment Fund. The concept of investing can appear daunting if you’re unsure how it all works – and it will involve taking a degree of risk with your capital – but the returns over time could potentially prove far more rewarding.
NAHT Financial Services, provided by our specialist partner Skipton Financial Services (SFS), can help you assess whether investing might be suitable for you. One of their Advisers can hold a no-obligation review of your needs and help you to assess your risk and reward profile, before making personalised recommendations from across the entire marketplace. Call 0800 012 1248 for more information.
SFS’s market-leading Monitored Informed Investing (MII) proposition could also help you aim to beat inflation. Through MII, your money is invested and continually monitored on your behalf, in support of an overall aim of delivering you above average returns over the medium to longer-term. To find out more, please call 0800 012 1248.
Please note: the Stocks and Shares ISAs and Funds available through SFS’s Monitored Informed Investing (MII) proposition are not like Building Society/Bank deposit accounts as they can rise and fall in value and your capital is at risk.The tax treatment of any investments depends on your individual circumstances and may be subject to change in the future.
* Source: http://www.bbc.co.uk/news/mobile/business-12819220
We’ve all felt the effects of the rising cost of living lately, but the impact on our finances will potentially be more far-reaching than higher food and petrol bills.
