What does high inflation mean for your savings?

We’ve all heard someone utter the words “it never used to cost this much in my day!” And the thing is – they’re absolutely right.

The cost of living, or inflation, is rising most of the time. Usually, prices go up at such a slow rate that we don’t really notice. But, when you take a step back and look at how the cost of everyday items increases over a longer period, the impact of inflation can seem huge.

Price of milk

Just look at what’s happened to the cost of a pint of milk over the last 40 years. According to the Office for National Statistics, a pint of milk would have cost 21p in April 1983. As of April 2023 this has risen to 68p – a 223% increase.

Inflation has become a big talking point over the last couple of years. From energy bills to food prices, the cost of living has become much more expensive.

The rise of inflation

One of the main measures of inflation is the Consumer Price Index (CPI). The Office for National Statistics analyses the average cost of a ‘basket’ of everyday items and reports the difference in price each month.

Graph showing how the rate of inflation has stayed higher than the average instant account savings rate since 2018.

As you can see from the chart, CPI has really shot up since the start of 2021. Although it has begun to go down over the first half of 2023, inflation is still very high. It’s something you’re probably noticing in different ways – from filling up your car to doing the big shop.

The graph shows how the rate of inflation (Consumer Price Index) has stayed higher than the average instant account savings rate since 2018. At times over this five-year period, the difference has been significant. For example in March 2023 inflation was 8.7% when the average instant access savings rate (with bonus) was 1.63%. The source for the average instant access account rate is taken from the Building Societies Association.

How have prices changed between 2010-2021?

Price increases of 31% for Fish and chip takeaways since 2010
Prices of Film tickets have increased by 32% since 2010
Prices for Foreign and coach holidays have increased by 21% since 2010

Source: Bank of England, December 2021

So what does this mean for your savings?

Beyond the here and now, inflation can also have an impact on the future spending power of your savings.

Take a used car. In April 2020, the average cost of a used car was £13,864. In April 2023, the average cost has increased to £17,843.

So, if you had £14,000 set aside to buy a used car in 2020, inflation would have made it more difficult to afford it just three years later. This is just an example based on recent events, and the price of used cars may not rise as fast in future.

Source: Auto Trader. Figures based on average advertised retail price of a used car seen by Auto Trader.

Savings for some things, investing for others

Savings accounts are a great way to build up money for short-term goals like buying a car, and it’s always good to have a just-in-case fund for any unexpected large bills. If you have further savings that you can tie up for five or more years, investing it could help you to grow your money – to give it a chance of beating the rising cost of living. There are no guarantees, as investing does mean placing your money at risk.

At Skipton we offer Financial Advice that could help you;

  • An expert financial adviser could talk to you about your financial plans and how investing works.
  • They could provide personalised recommendations for ways you could make more of your money based on your personal circumstances and goals.
  • This also includes helping you establish your personal feelings to risk and reward. So you can make informed decisions.

The great thing about our service is there’s no pressure to act on our advice. And no up-front fee to hear it. Charges only apply if you decide to take up a recommendation.

Important information

Our financial advice service is available if you have at least £20,000 to invest or are happy to invest £500 a month.

Our investment recommendations are not like savings accounts, as your capital is at risk and its value may fall as well as rise. Past performance is not a guide to future returns. Economic and market conditions experienced in the past may not be repeated in the future.

Get in touch and get started

For more information on our service and to find out whether you could benefit from financial advice, call our team today for a free initial consultation.

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