Inflation Set To Hit 3%, UK’s Savers Can’t Afford To Give Up

Inflation Set To Hit 3%, UK’s Savers Can’t Afford To Give Up
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  • Inflation is expected to push above 3% this summer, after coming in higher than the Bank of England expected in May (2.1%).
  • However, it expects this to be a temporary phenomenon, so interest rates are unlikely to rise any time soon, and the Bank held the base rate at 0.1% today.
  • The Bank also maintained the amount of quantitative easing at £895.5 billion – although one member of the committee voted against this.


Q1 2021 hedge fund letters, conferences and more

The Bank of England Monetary Policy Committee has issued its meeting minutes and announced the rate.

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Inflation Set To Hit Above 3%

Sarah Coles, personal finance analyst, Hargreaves Lansdown:

“Inflation is set to go above 3% this summer, dealing yet another horrible blow to savers. Right now, however long you’re prepared to fix your savings for, you can’t get more than 1.65% (Shawbrook Bank over 7 years). Savers might feel they’re fighting a losing battle to stay ahead of inflation at the moment, but they can’t afford to give up.

Rates aren’t much to write home about, but that doesn’t mean you should shrug your shoulders and settle for 0.01% from a high street bank. Nobody putting £30,000 aside for a year should have to settle for £3 of interest when there’s £150 available from a newer bank or £300 if you fix for a year.

We should all have 3-6 months’ worth of essential expenses in a competitive easy access account, and at the moment, the best you can make on this money in an account without restrictions is 0.5%. We can’t afford to risk going without these emergency savings. If the past year has taught us anything it’s that life is desperately unpredictable, and having a safety net to fall back on can make a massive difference.

Beating Inflation With Long-Term Savings

Once you have your emergency fund, you also need cash savings to cover the money that you’re planning to spend in the next five years. However, the chunks of it that you don’t need to spend in the next year can be tied up in fixed rate accounts for the most appropriate periods. At the moment you can make 1% by fixing for a year and 1.15% by fixing for two.

If you’re putting the money away for 5-10 years or longer, it’s well worth considering investments. These will rise and fall in value over the short term, but over the long term stand a much better chance of beating inflation.

It’s worth knowing that these are your options: a guaranteed lower return or more risk in return for more potential growth. If the Bank’s inflation warning persuades you to go searching for an alternative, and an internet search suggests you can make over 3% without taking a risk, then there’s a serious danger that you’re being lured in by a scammer.”

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