How to get the most from your savings

Are you wondering how to make your savings work for you after a unsteady few years for financial markets?

 In 2021, as the UK began to emerge from the Covid crisis and restrictions were eased, the economy started on its road to recovery. People started venturing out again, spending more than ever and the demand for goods and services grew pushing the prices up. Whilst this was by no means a bad thing, coupled with the sudden upsurge in the price of oil and gas and ongoing post-Brexit teething problems, this year the UK has seen its highest rate of inflation since 1992.

So, what is inflation?

It won’t have escaped your notice that staycations this year were considerably more expensive, the cost of our weekly shop has gone up and, more recently, filling up our cars costs a small fortune. This is inflation. According to the IMF, “Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year.” An increase in the demand for and cost of goods and services decreases the purchasing power of our money. For example, if last year half a dozen eggs cost £1 and now they cost £1.10, that’s an annual rise in inflation of 10%. Basically, we now get fewer eggs for the same money. Inflation can not only be calculated to give the overall rise in prices, but also industry-specific data, for example, it has been said the cost of food could rise by up to 15% this year.

Why is this important?

Despite low unemployment and a strong labour market, the current wage increase cannot keep up with the steep rise in inflation we’re seeing and one of the consequences of this is that the money we have sitting in our bank accounts is actually devaluing as what you can afford to buy with that money is slowly being chipped away at. That’s why, during times of high levels of inflation, seeking alternatives for where to place our money with the intention of increasing its value is a sound investment (pardon the pun) of our time.

What are my options?

The first two questions you need to ask yourself when considering where to place your money are the following:

  • What are my savings aspirations?
    This refers to your financial goal. For example, do you want to increase the value of your money to fund your retirement (long-term goal) or do you want to make money for a more immediate purpose, such as paying off your credit card or putting down a deposit for a mortgage (short-term goal).
  • What is my appetite for risk?
    All investments come with a level of risk and don’t always perform the way we would hope or expect them to. This is why it’s good to understand what level of risk you’re comfortable with taking, i.e. how much money can you afford to lose should the worst happen. Of course, the bigger the risk, the bigger potential for growth of your investment and so being clear on this point from the start will help you decide where to put your money when the time comes.

Once you feel confident you know the answers to the above questions, you can begin to explore your options for investment. Investment products include stocks, shares, bonds, funds, Government bonds or basically anything you can buy that might increase in value, such as property, land, classic cars, venture capitalism, etc.

If your appetite for risk is very low, another option would be to place your money into a savings account. Right now, some of the bigger banks are offering measly rates of 0.01% interest which, coupled with rising inflation, actually means your money will still be worth less by the end of the year. However, there are still a couple of accounts with more attractive rates so be sure to shop around to get the best deal.

Depending on your financial goals and risk aversity, different products will be more or less suitable and a qualified independent financial adviser can help you make sense of the investment products on offer. You can also read our other blogs ‘How to invest for growth’ and ‘How to get started investing’ for more tips and advice and if you are thinking of investing or putting your money into a savings account, get in touch, we’d be more than happy to help.

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