Is inflation a threat to your wealth?


Money is only ever really worth what you can buy with it.

Over time, rising prices erode the value of cash. Compare, if you will, how far £10 could stretch when you were younger to what it will buy today. It’s not just the price of goods that has risen over the past decades, but also assets like property.


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Sources: Office for National Statistics, Nationwide; January average figures (Nationwide House Price Index Q1 1977)

Erosion of savings

Inflation can have the same corrosive effect on the money that you’ve set aside for your future. Rather than rising in value, as you might hope, your savings could be being slowly diminished.

To avoid losing value, your savings need to grow at the same rate as prices are rising. In the current climate of very low interest rates, however, achieving this could be a challenge.

Interest rates on deposits in cash Individual Savings Accounts (ISAs) have generally remained below inflation over the past few years. Some savings accounts offer higher rates, but most pay interest well below the current rate of UK inflation – even if you tie your money up for three years.

Up to £85,000 of your money is secure in a bank or building society through the Financial Services Compensation Scheme, unlike stocks and shares or fixed interest investments which are less secure.

Aiming to beat inflation

Below-inflation interest rates could slowly, but surely, erode what your savings are really worth. Investing some or more of your savings could help you navigate the threat that inflation poses to your long-term financial health.

Not only does the value of many investment assets often rise with inflation, offering some protection from rising prices, but successful investments should deliver higher returns than cash savings alone can muster.

The prospect of inflation-beating returns comes with the fact that they can never be guaranteed, and the risk that you could lose some or even all of your money. Each investment carries its own risks and possible rewards, however, so your strategy can reflect your personal attitudes and financial goals.

Many investment products including funds, which package a range of assets to try and achieve a stated objective, will suit particular priorities. Some specifically aim to provide investors with an income that rises and falls in line with inflation – or with returns that beat it.

Investing money carries costs, of course, but these could end up looking very good value if your investments deliver on their potential, helping you to realise your long-term financial goals.

So long as inflation continues to outpace the interest rates on offer from the banks, keeping too much of your savings in cash threatens to leave you and your family gradually worse off in the future. When savings are hard won, this is a risk worth weighing up.

Important information

The views expressed in this document should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.

When you're deciding how to invest, it's important to remember that past performance is not a guide to future performance and that the value of the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.