Inflation-proof your savings
Inflation is always bad news for the nation’s savers. That’s because inflation eats away at the returns from your cash.
The solution is to find a home for your savings that offers a higher return than inflation. For example, if inflation is at 2%, you’ll need an account that pays at least 2.1% AFTER tax in order to get a return in real terms on your money. It can be tricky to find accounts that do so.
However, one brilliant way to beat inflation is with an index-linked bond.
A number of providers offer these, and they work in a very simple yet effective way.
Here’s the deal. You lock your money away in the bond for a number of years, generally between three and five years. And each year you will have interest paid on your cash, as with any other type of savings product. However, here’s the clever bit – the amount of interest you will earn is determined by state of inflation.
So you will earn a certain percentage above inflation on your cash each and every year. For example, the provider may offer a bond paying 1.5% above the Retail Prices Index (one of the measurements of inflation). If in a year’s time the Retail Prices Index stands at 4%, your savings will enjoy an interest payment of 5.5%! It’s a brilliant way to guarantee that your savings will beat inflation and make real term gains.