Wojciech
Diploma for Financial Advisers
Diploma in Accounting
Member of London Institute of Banking and Finance
Inflation is like a slow leak in your wallet—it quietly reduces how much your money can buy over time. If you’re asking yourself what to do with savings when inflation rises, you’re not alone. In the UK, rising prices for essentials like energy, food, and housing can make your hard-earned savings feel smaller. But don’t worry—there are practical steps you can take to protect your money. Here’s a straightforward guide tailored for UK savers.
1. Invest in Inflation-Linked Savings
The UK government offers Index-Linked Gilts, which are bonds designed to rise in value with inflation. These adjust their payouts based on the Retail Prices Index (RPI), ensuring your returns keep pace with rising costs. Another option is NS&I Index-Linked Savings Certificates (when available), which also protect against inflation. These are low-risk choices for cautious savers.
2. Diversify With UK Stocks or Funds
Shares in companies often outperform inflation because businesses can increase prices as costs rise. Focus on UK sectors like energy (e.g., BP or Shell), utilities, or consumer staples (e.g., Unilever). Dividend-paying stocks, such as those in the FTSE 100, provide regular income alongside growth potential. If picking stocks feels daunting, consider UK index tracker funds or ETFs (like those tracking the FTSE All-Share) for broad, low-cost exposure.
3. Explore UK Property Investments
UK property has historically been a strong hedge against inflation. Rising rents and property values can offset the impact of higher prices. If buying physical property isn’t feasible, look into Real Estate Investment Trusts (REITs) listed on the London Stock Exchange (LSE), such as British Land or Landsec. For first-time buyers, a Lifetime ISA (LISA) offers a 25% government bonus on savings for a home deposit.
4. Use High-Interest Savings Accounts or Fixed-Rate Bonds
Traditional high-street bank accounts often offer meagre interest rates. Instead, opt for high-yield savings accounts from UK challenger banks (e.g., Marcus by Goldman Sachs or Charter Savings Bank) or fixed-rate bonds (which lock your money for 1–5 years). Ensure your provider is covered by the Financial Services Compensation Scheme (FSCS), which protects up to £85,000 per person.
5. Consider Commodities Like Gold
Gold is a classic inflation hedge, and the UK’s London Bullion Market is one of the world’s largest trading hubs. You can buy physical gold through UK dealers or invest via ETFs like the iShares Physical Gold ETC (traded on the LSE). Energy commodities, such as oil and gas, are also worth considering—look at UK-focused energy funds or ETFs.
6. Tackle High-Interest Debt
While inflation can reduce the “real” cost of debt over time, high-interest debts (like credit cards at 20–30% APR) will still drain your savings. Use spare cash to pay these off first—it’s a guaranteed return equal to the interest you’re avoiding. For example, clearing a £5,000 credit card balance at 24.8% APR saves you £1,240 a year.
7. Review Your Savings Regularly
Inflation rates change, so your strategy should too. Check your portfolio every 6–12 months. Are your stocks or funds keeping up with the Consumer Prices Index (CPI)? Does your emergency fund (3–6 months of expenses) still cover rising living costs? Adjust as needed.
What to Avoid in the UK When Inflation Rises
- Holding Too Much Cash: Savings accounts with below-inflation rates erode your money’s value. Keep only emergency cash in easy-access accounts.
- Overlooking Tax Efficiency: Use tax-free wrappers like ISAs (up to £20,000/year) or a Personal Savings Allowance (£1,000 tax-free interest for basic-rate taxpayers).
- Panic Selling: Volatility is normal—stick to long-term plans.
UK-Specific Tips
- Energy Bill Support: Redirect savings into energy-efficient home upgrades (e.g., insulation) to combat rising utility costs.
- State Pension & Benefits: Ensure you’re claiming entitlements like the Triple Lock pension (which rises with inflation) or Cost of Living Payments if eligible.
Final Thoughts on What to Do With Savings When Inflation Rises
Inflation is a challenge, but UK savers have tools to fight back. By mixing inflation-linked gilts, diversified stocks, property (via REITs or LISAs), and tax-efficient accounts, you can shield your savings from rising prices. Stay flexible, avoid debt traps, and keep learning. For more tips on building a UK-specific safety net, visit MoneySavingExpert’s guide.
Remember, the answer to what to do with savings when inflation rises lies in staying informed, proactive, and using the UK’s unique financial tools. With the right plan, you’ll not only protect your money—you’ll set it up to grow.
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