More than half of all cash savers (52%) don’t know what impact inflation will have on the real value of their cash savings over time, while 13% believe inflation will leave them better off.
13 Apr 2022
New research from Legal & General1 has found that despite inflation reaching record levels many people in the UK are not aware of its impact on their finances.
The findings reveal:
Emma Byron, Managing Director, Legal & General Retirement Solutions: “Inflation is at its highest rate for three decades and it’s worrying that savers don’t realise its eating away at millions of pounds sitting in low-interest paying accounts. Understanding the impact of inflation is crucial to understand how much money you have in real terms. Whilst it is essential to keep some cash in the bank for an emergency fund, savers might want to consider other options to make their money work harder.”
Tip 1: Work out how much to put aside as an easy-access emergency fund
The Money Helper4 service suggests that you should save for emergencies. As a rule of thumb, you’ll need enough to cover your essential expenses for three months. You should be ready cover bills like energy, your mortgage, travel and food costs, so should the unexpected happen, you’ll be prepared. And you’ll know exactly how much money you need to keep in cash (which can be hit by inflation), so you can start saving any extra income in more inflation-proof ways.
Tip 2: Get best the interest rate you can on your savings
Make sure that any cash savings you have are getting the highest interest rate possible. These days you can switch savings accounts and ISAs relatively easily. But if you do find a higher rate, remember that they can quickly go down. For example, it’s common for Cash ISAs to offer high rates for the first year. Those rates can drop dramatically after the first year. So always set a reminder to keep an eye on any new savings rates you find. You can find more information on most bank websites and compare interest rates on comparison websites.
Tip 3: Think about investing your money or topping up your pension to beat inflation
It’s important that consumers are aware of the long-term impact of their pension contributions, alongside the compound effects of investing. So if you can stash your savings away for the long term, think about topping up your pension, or investing in a stocks and shares ISA.
People will understandably be feeling unsure about the future at this moment in time, but the key thing to remember is that investing is for the long term. With time on your side, you can balance out the ups and downs of market volatility. And if you have an emergency fund, you might well be able to ride out any storms and leave your investments untouched. That’ll give them a chance to go back up in value again.
1 Opinium survey of 2001 UK adults in the UK conducted between 4th and 8th February. The 10.3 million savers refers specifically to cash ISA savers
2 This is based on 10,303,247 cash ISA savers with median savings of £7,231 stalling their investment decision. The total savings amount is projected over 5 years at a cash ISA rate of 0.26%, allowing for a 6%, 7% and 8% rate of inflation per annum. This results in an erosion of value of £18 billion, £21 billion and £23 billion over a five year period.
3 Average interest rate for instant access cash ISAs: https://www.which.co.uk/news/2022/01/a-month-on-from-the-base-rate-rise-have-savings-rates-improved/
Established in 1836, Legal & General is one of the UK's leading financial services groups and a major global investor, with over £1.2 trillion in total assets under management* of which 39% is international. We have a unique and highly synergistic business model, which continues to drive strong returns. Legal & General provides powerful asset origination and management capabilities directly to clients, which also underpin our leading retirement and protection solutions. We are a leading international player in Pension Risk Transfer, in UK and US life insurance, and in UK workplace pensions and retirement income. Our purpose is to improve the lives of our customers and create value for our shareholders. Through inclusive capitalism, we are investing in long-term assets, such as real estate and infrastructure, that can help build a better society for the future.
*as at HY 2023
Legal & General Retail helps create brighter financial futures for all our customers. The division covers the savings, protection and retirement needs of our c.13 million retail policyholders and workplace members.
In 2022, we had total individual annuity sales of £954 million, and issued £632 million of Lifetime Mortgages and Retirement Interest Only Mortgages. Our Workplace pension platform served 4.9 million members, while our Protection businesses gave peace of mind to more than 6.3 million UK life insurance, 1.8 million group and 1.5 million US customers, taking in £3.1 billion of gross written premiums.
*at 31 Dec 2022