How to help prevent inflation from devaluing your savings

Inflation has dominated the headlines in recent years with the prices of energy, everyday essentials and luxuries increasing. Along with that, many people are finding that their return on savings is failing to compete with the rises.

Inflation relates to how much the cost of goods and services have risen over time and is typically measured by comparing prices to those of the previous year. The current rate of inflation is 4%, meaning that most items will cost approximately 4% more than they did in 2023.  

The impact of inflation on savings  

Essentially, if you put aside a certain amount of money to spend in the future, an increase in inflation will mean that you can no longer get the same amount of goods or services as you could at the time of saving. Even putting your money into bank or building society accounts which offer interest rates won’t usually compete with inflation.  

So how can you avoid this if you’re looking to save for future situations such as a house purchase or retirement?  

Invest in commodities  

Historically, commodities such as gold have stood the test of time and are often referred to as ‘safe havens’. Gold is still a highly regarded asset among investment portfolios and its value can increase significantly when the economy and pound is weak.  

Gold is also known as one of the least volatile commodities and, because it’s not printed and controlled like currency, it can attract those looking to hedge against inflation.  

Other commodities that typically hold their value include silver, oil and natural gas.  

Index funds 

These are also seen as a less risky form of investing because they track the prices of a range of companies and goods across many sectors. Index trading can include popular indices such as NASDAQ, DOW Jones and the S&P 500. These all feature some of the top blue-chip companies, representing a range of industries.   

Many traders see indices as a good way to diversify their portfolio and minimise risk while investing for their future.  

High interest savings accounts  

If you still prefer the idea of having your money in a secure savings account, or you find the idea of investing too risky, then it’s worth shopping around to find the best ones. You’re more likely to get more for your cash if you invest a high sum over a longer period of time. Sometimes, this means being unable to access your cash for a number of years or having only limited access.  

Of course, before you begin saving it makes sense to pay off any debt and have an emergency fund that can be accessed should something go wrong. This could be for anything from house repairs to unexpected bills. Once you’ve got some money set aside that you can easily access, then you might want to consider which of these is the best option to get the most out of your hard-earned cash.