How to keep personal savings secure during inflation
To keep your private savings intact, the first thing you should do is make sure you have an Isa allowance that beats the current Consumer Price Index (estimated at 3.2 percent in mid July 2010). However, when you have already used up your Isa allowance this is where it can become tricky and many people choose to consult financial advisers.
One possibility is to create a regular savings account. These usually offer high percentage yields but on relatively small investments. For example, the Nottingham Building Society offers an interest rate of 5 percent for a total of £100 a month for one year. Another option is to buy an ’index-linked gilt’, which is otherwise known as a ’linker’. A ’linker’essentially places a bet on inflation increasing rather than decreasing. It will involve you lending some of your money to the government, who in return will provide you with a coupon (interest) until the money is returned back to you at a later date. All capital gains are free of tax, however if inflation begins to fall again then you will lose money.
Rob Pemberton, member of HMF Columbus, a wealth management group, is warning investors not to fall into the trap of assuming that an index-linked gilt is a secure hedge against the UK’s inflation rise. Meanwhile, stockbroker for Bestinvest Adrian Lowcock suggests that investors should try to find ways of ’diversifying'their risks through corporate bond funds, although the higher the yielding percentage the more risk is associated with such funds.
David Black from the finance group Defaqto even suggests overpaying your own mortgage, as a higher interest rate on a mortgage can also mean tax-free interest on personal savings. However, you will need to make sure that your mortgage company doesn’t issue fines for overpayments.
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