How Does Inflation Affect Savings?

How Does Inflation Affect Savings?

How Does Inflation Affect Savings?

The UK inflation rate has risen over the past few months from 0.5% in September, to 0.7% in November. What does this tell us? In this case, it’s due to the rising prices of food and clothes in the UK. As prices for goods and services rise, so does inflation. Controlled rises are considered good for the economy because they boost consumer activity (people rush to buy goods and services before prices go up) which allows businesses to contemplate wage rises.

How Does Inflation Impact Individuals?

At a basic level, inflation means that your money is worth less as inflation rises. Your buying power is therefore reduced, unless your wages are increased to cover the shortfall created by inflation rises. This is felt most sharply in our purchases of food, utilities, transport costs and consumer goods. But how does inflation affect savings, investment and pensions?


Savings Accounts

Suppose you deposit £15,000 in your bank account for 5 years in order to buy a car. Over that period the sum will grow modestly, as a result of interest rates. If, however, the rate of inflation is higher than the interest rate, your money will have devalued, rather than increased, over that period. The Bank of England has an inflation calculator which demonstrates this.


Pension Funds

High inflation rates can be bad news for pension funds. Which is bad news for your retirement. To avoid disappointing investment returns, it’s important that you monitor the performance of your funds. Should you discover that your pension is failing – over time – to beat the rate of inflation, you have the opportunity to make alternative arrangements,  offering more beneficial rates of growth for you.



Beating inflation is all about buying wisely. The investment products you consider, therefore, should be equal or above the rate of inflation. Inflation-indexed bonds, for example, are not an inflation risk because they move to accommodate the rate of inflation. And inflation can be good news for investors! Rising inflation has the effect of reducing mortgages and debts over time.


Concerned About Inflation?

Gaining knowledge of the pitfalls around inflation is important, because it allows you to take control of your finances. If you are worried that inflation may be eroding your savings or investments, call Harpur Wealth Management. One of our financial advisors will be able to run an audit on your existing financial arrangements, and suggest alternatives if necessary.

About Harpur Wealth Management

Harpur Wealth’s financial advisors help clients to create strategies which allow them to meet their financial goals. Crucially, we know that financial goals, or economic condition can change. We ensure that our clients have regular review meetings to ensure that your wealth management strategy stays aligned to your goals and requirements.

Would you like to speak to a financial advisor today? All you need to do is call us on 01234 924620, or message us


This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.


The value of your investment can go down as well as up and you may get back less than the amount invested.


‘The Financial Conduct Authority does not regulate taxation advice’

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