How can I protect my savings from inflation?

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Fears around rising inflation are growing. So if you have savings, what can you do to protect the value of your cash? Here’s what you need to know.

Inflation: what is it?

Inflation refers to the rising cost of goods or services. For example, if the inflation rate is 3%, then £100 worth of goods last year will now cost you £103. In other words, your cash is worth 3% less than a year ago, reducing its purchasing power. 

High inflation can be highly damaging if you have savings. This is because if you have money in a savings account paying interest below the rate of inflation, your money is effectively losing its value. Inflation can also be damaging if you rely on working income and you don’t get a significant pay rise.

How is it calculated?

To measure inflation, the government mainly relies on the Consumer Price Index (CPI). The CPI looks at the cost of an average ‘basket of goods’ and compares it to the previous year’s cost. CPI does not include inflationary rises in housing, stocks and shares.

Another measure of inflation is the retail price index (RPI), which is similar to the CPI but uses a smaller sample size and includes some housing costs.

The latest CPI figure was 2.5% in June 2021, its highest for almost three years and above the government’s 2% target. The Bank of England, which is in charge of monetary policy, may influence the inflation rate by altering its base rate, or by pumping money into the economy through quantitative easing. 

For more on what can cause inflation, see our article explaining what inflation is.

How can I protect my savings from inflation?

If you have savings, it’s important to get the highest interest rate you possibly can.

However, before you stash your cash, you’ll need to determine which type of savings account to open. There are three main types:

  1. Easy access. An easy access savings account allows you to access your money whenever you want. Interest rates are variable, meaning they can change at any time.
  2. Fixed bond. A fixed-bond (or fixed-rate) savings account allows you to lock away cash for a set period of time with a guaranteed interest rate. Typically, the longer the fix, the higher the interest rate. 
  3. Regular savings. A regular savings account lets you make regular deposits, up to a set limit. Interest rates can be fixed or variable and you can usually withdraw cash, though you can’t replace what you withdraw. 

Once you’ve determined which savings account is right for you, you should find one that pays the highest rate of interest. See our easy access, regular saver, and fixed-rate bond pages for a breakdown of our top-rated accounts.

Is investing a better option?

In the current low-interest environment, finding a savings account that pays more than the rate of inflation may prove challenging. Remember, if your savings account pays an interest rate lower than inflation, your cash is effectively losing its value.

To protect your money, you may therefore decide to invest instead.

In inflationary environments, stocks and shares typically outperform inflation in the long run. However, there is no guarantee they will do so in the future. Bonds, on the other hand, typically suffer losses in inflationary environments.

If you wish to go down the investing route see our list of the top-rated share dealing accounts.

What about physical assets?

It’s worth knowing that if you want to protect your wealth from inflation, you don’t have to stick to a savings or investing account. Holding physical assets is traditionally seen as a good counter to high inflation, with reports suggesting that traders are already turning to gold to ward off the inflation monster. That’s because gold has no connection to a currency or regular markets. 

The same description has been given to cryptocurrencies, such as Bitcoin, which are sometimes touted as inflation-proof. However, aside from having no physical presence, cryptocurrencies are extremely volatile. If you choose to buy cryptocurrency, never buy more than you can afford to lose. To learn more, see our article giving you the lowdown on what cryptocurrency is.


If you have savings, inflation can be a killer. To limit the impact, it’s a good idea to find the best interest rate possible.

Investing in stocks or physical assets can be an alternative to holding cash in a savings account, but there are no guarantees. Remember, as with any investing, the value of your investments can go down as well as up. 

The post How can I protect my savings from inflation? appeared first on The Motley Fool UK.

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