Value of savings is disappearing before our eyes

interactive investor's head of pensions and savings comments on the latest shock inflation figures.  

The Consumer Prices Index measure of inflation rose to 3.2% in the 12 months to August 2021, up from 2% in July and the largest increase ever recorded, although the Office for National Statistics added that “this is likely to be temporary”.

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “Rapidly rising prices affect everyone, and today’s data confirms what people have felt over the summer – that everything is suddenly, noticeably more expensive. 

“While inflation affects everyone, it is more of a problem for people on lower fixed incomes, including pensioners. It’s also relentlessly hard on savers, who are also likely to be older and who were already struggling to make saving at low interest rates worthwhile. Now, savings in deposit accounts are lagging even further behind prices, with the value of savings disappearing before people’s eyes. A best buy easy access account currently pays 0.6 per cent, according to Moneyfacts.

“Investing for the long term in pensions and ISAs helps guard your money against inflation. The latest private investor index showed that over the year to June, the average ii customer was up 23 per cent. Past performance doesn’t tell us what returns from the global stock market will be like in future, and with investing, values can fall too, but at the moment, for money not needed in the short-term, investing looks to be a good option to try to beat inflation.

“Next month’s data, reflecting September’s inflation figures, will determine the level at which the state pension uprating is set from April next year under the new temporary ‘double lock’, so will be keenly watched by those reliant on the state pension. A rise of 3.2% would mean an increase in the full new state pension weekly amount from £179.60 to £185.35.”