How to protect your savings as inflation soars

As inflation continues to rise, reaching 8.5% in the United States in March, it’s important to find ways to protect your savings.


Soaring consumer prices are making it increasingly difficult to manage the cost of living. Understanding the best ways to protect your savings has never been more important.

Inflation is red hot, with the latest data on Tuesday showing prices in the United States hit their highest level in March since 1981. The consumer price index, which tracks a wide range of goods and services, has jumped 8.5% last month over the previous year. That was slightly above an expected 8.4% rise in prices.

And real profits, despite rising 5.6% since March 2021, have not kept pace with rising prices. Data from the Labor Department showed a seasonally adjusted decline of 0.8% in average hourly wages in March.

In the UK, meanwhile, the Office for National Statistics reported on Tuesday that wages, excluding bonuses, rose 4% in the three months to February. On an inflation-adjusted basis, this means that wages actually fell by 1%.

Other British data showed on Tuesday that the country’s cost-of-living crisis had partly led to a slowdown in retail sales. The UK’s British Retail Consortium found retail sales rose 3.1% in March, compared with a 6.7% increase in February.

In addition, a survey by UK investment platform Hargreaves Lansdown, published on Tuesday, showed that amid the rising cost of living in recent months, 27% of Britons had put less into savings, while 25% had spent their savings.

So how can you best protect the money you can still put aside?

Don’t freeze money too long

Laith Khalaf, head of investment analysis at UK investment platform AJ Bell, told CNBC in a phone call that first of all it was important to understand that as interest rates were still well below the rate of inflation, money would lose some of its purchasing power if held. in liquid.

One way to mitigate this, if you needed to hold cash, was to shop around for a savings account with the best rate. However, he cautioned against opting for fixed-term savings accounts that lock in money for long periods of time, as rates are likely to rise from here.

“So what you don’t want to do is lock in your money for like five years at today’s rates and then six months, 12 months later you look at the rates and you’re like ‘ oh my god, they’ve grown tremendously,” he explained.

Khalaf said it would be better to consider fixed savings account products that only have a term of 6-12 months, but again warned that interest rates are expected to rise significantly this year, but not as high as inflation.

Funds versus stock selection

Similarly, Simon Goldthorpe, co-executive chairman of financial life planning services firm Beaufort Financial, told CNBC via email that while it is “recommended to keep a certain amount of cash wealth for emergencies the rainy days, especially in light of the rising cost of living, anything beyond that should be worked harder” by being invested, for example.

Goldthorpe said investors should ensure their portfolio is diversified, with money held in investments that can perform well in an inflationary environment.

He added that savers should focus on their long-term goals when investing, and acknowledged that “adjusting investments as the landscape changes is part of the process, but sticking to one course over time.” time will always bring significant benefits”.

Myron Jobson, senior personal finance analyst at UK investment platform Interactive Investor, said investing in the stock market is a good option for savers who are putting their money aside for five years or more.

“Even an ‘intermediate’ fund is likely to compare favorably to cash over the long term, so you don’t have to be an expert stock picker to benefit from it,” he told CNBC per E-mail.

Khalaf also recommended investing through funds, even if it’s in one that tracks the market index, to ensure diversification. If an investor wanted to do some stock picking themselves, he suggested putting three-quarters of the money you want to invest in funds and then investing in some individual companies with the remaining 25%.

He said that using this method would mean that you would have this “diversification core, even if there are a few companies that are wrong in what you have chosen, it will not have a hugely detrimental effect on your wealth. global.”

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