Inflationary Pressures

By Author: Lecia Selbo
Total Articles: 49
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According to figures recently released by the Bank of England, the rate of inflation will spiral to over 3% in the next few weeks, further eroding the savings of those who have put their money away in savings accounts.

The Bank of England base rate, which sets the tone for the High Street, remains at an all-time low, meaning many savings accounts offer little more than 0.5%. A low BoE base rate is good news for mortgage-owners, but not so good for savers.

The BoE predicts that the current spike in inflation will be short-lived and followed by a quick fall back below the 2% that it sets as a target. The spike is apparently due mostly to the high cost of fuel and a temporary rise in other living costs.

What this means for the average customer is that their savings are actually slowly decreasing in value, even if they are earning interest. Inflation makes everything more expensive, so in reality it makes money reduce in value. If you have your money in a savings account that earns, for example, 0.6%, with the current rate of inflation at 2.9% your money will actually be decreasing in value by 2.3%.

To ...
... make things even worse, if you have managed to find a good savings account, it may be about to disappear. Since the start of the New Year eight out of the top ten savings accounts on the market have been withdrawn, and there''s no sign of that trend stopping.

So what can you do with your cash that will offer a good return? There are two main options. The first is to invest money in a stocks and shares ISA. Stocks and shares ISAs have a bad reputation because of the risks associated with the stock market, but they don''t have to be risky at all. A low-risk corporate bond and government gilt ISA will pay out around 5% interest at the moment, far better than any savings account and well ahead of the rate of inflation.

Another alternative is to pay off any debts you have as fast as you can. Whilst the interest rate remains low its good use of money to pay off your mortgage in particular. Bank of England figures suggest that the average rate for a tracker deal is the lowest since 1997.

It''s always important to make sure that your money goes as far as it possibly can and at present most savings accounts are not representing good value for your money. If you can afford to put your money away for the long term a stocks and shares ISA is one of the few places to save your money that actually represents good value. If you get an account before the start of April, you will also be able to make the most of this years ISA allowance before it rolls over, so it''s definitely worth consideration. Lecia Selbo opened a stocks and shares ISA with Legal