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IT MAY BE TIME TO INVEST YOUR CASH
Is your wealth protected from the damaging effects of inflation ? by Sam Hulson of First Equitable
As we start a New Year , it is the spectre of inflation that is once again looming large . Many people underestimate the damaging effect of low interest and high inflation on their cash savings . A continued period of low interest rates on cash savings and rising inflation could pose a real risk to savers in 2022 , even if the Bank of England ( BoE ) moves to increase interest rates further in the coming months .
Savers with large amounts of money sitting in cash should not be lulled into a false sense of security if interest rates creep up , because of the threat of higher inflation throughout 2022 . The damaging effects of high and rising inflation will likely more than wipe out any uplift a higher interest rate will give to the value of cash savings . Currently , it is estimated some 8.6 million consumers hold over £ 10k of investable assets in cash [ 1 ].
INTEREST ‘ BASE RATE ’ INCREASE
Inflation is expected to average over 4 % this year , peaking at over 5 % [ 2 ]. The BoE may look to dampen the effects of soaring prices by further increasing the interest ‘ base rate ’. While this may offer some relief if passed on to savers , the average easy access savings account is currently sitting at just 0.19 % [ 3 ] and any upward change is expected to be small .
As the economy continues to recover from the COVID-19 pandemic last year , we are experiencing a sharp rise in the cost of living . During a period of high inflation people will notice a dramatic decrease in their purchasing power over time , particularly if their wages don ’ t keep pace or if they have savings in cash .
DAMAGING HIGH INFLATION
of money in cash savings . Following many years of low inflation , people may have forgotten how damaging high inflation can be . But in the coming months and years , savers should think carefully about where they put any additional cash that is not needed in the short term .
For money beyond your emergency fund , you may want to consider investing , which offers the potential for inflation-beating returns . If deemed appropriate to your particular situation you should be prepared to take some risk to preserve the value of your money , should inflation continue to eat away at the value of your cash in savings accounts .
CONCERNED ABOUT HOW INFLATION IMPACTS ON YOUR SAVINGS ?
After years of staying relatively low , it looks like inflation is on the up . So what does that mean for your money ?
We are best placed to recommend the best investment option ( s ) based on a full evaluation of your personal circumstances , short and long-term objectives , and your attitude to risk .
To discuss how to mitigate the impact of inflation on your financial plans , please contact us – You can also email me at : sam . hulson @ first-equitable . com
Source data : [ 1 ] https :// www . fca . org . uk / publications / corporate- documents / consumerinvestments-strategy [ 2 ] https :// obr . uk / overview-of-the-october-2021- economicand-fiscal-outlook / [ 3 ] https :// moneyfacts . co . uk / news / savings / savings-ratescontinue-to-rise /
The threat of inflation this year and beyond could far outweigh any small changes in interest rates for those with large amounts
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