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What does falling inflation mean for savers?

The rate of inflation fell to 1.8% in January, making it easier to earn an inflation beating return on your cash. Could it be time to take another look at your savings?

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The last decade has been a pretty miserable time for savers. Not only have savings rates been very low, but for much of this period the inflation rate has been higher than savings rates, meaning that in real terms savers have been losing money.

However in recent months the inflation rate has been dropping, falling to 1.8% in January – it’s lowest rate in two years. The Bank of England has been tasked with keeping the inflation rate at around 2%, a level at which our economy can keep growing steadily without the risk of it overheating, and in its latest inflation report the Bank of England predicts inflation will stay around this level until at least 2022.

There are now plenty of opportunities for savers who want to earn an inflation beating return on their cash. While no easy access savings will offer an inflation matching return, if you fix your savings for as little as one year you can earn around 2%.

Get strategic with your savings

If you want to earn an inflation beating return on your cash, while ensuring you have access when you need it, one strategy could be to set up a savings portfolio. Generally the first port of call is to have some easily accessible money, financial planners usually suggest three to six months’ worth of income. But for any cash you have above that you can strategically use a variety of fixed terms to boost your aggregate returns.

Remember the longer you fix for, the better the rates available. Fix for over five years and you could get 2.5% or more on your savings. But with fixed term savings you can’t usually access your money until maturity.

Climb the savings ladder

Or another approach for fixed-term savings could be to ‘ladder’ them. It works like this. Say, for example, you have some spare cash each month which you want to save. It’s part of your long-term plan, so you don’t need immediate access to it, but your circumstances might change in future so you don’t want it tied up for too long.

So each month, you save any spare cash you have into a 12 month fixed-term savings product which pays around 2%. After a year you have savings maturing each month, which you can either withdraw, use to top up your easy access savings, or roll over into another fixed-term product.

You have the flexibility to change the amount you save each month and, by using fixed-term savings in this way, you can earn a much higher interest rate than by having everything in easy access savings.

This is just an example and everyone’s situation will be different. It might be that you add to your savings less frequently, or prefer to use longer fixed terms, but the principle could stay the same.

Get your savings working harder, without the hard work

Whatever your cash strategy, our new Active Savings service could help. It lets you pick and mix easy access and fixed term savings products from a range of different bank and building societies, through the convenience of one online account.

And once you’re set up there are no forms or paperwork when you want to move your savings around. Just simple, fair saving so you always know what rates you’re getting.

So why not join Active Savings today and improve the way you save, forever?

This article is aimed to help you make informed decisions but it isn’t personal advice. If you’re are not sure if a savings product is right for you, please seek advice.

Discover Active Savings

This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248. The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017 with firm reference 751996 for the provision of payment services. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are wholly owned subsidiaries of Hargreaves Lansdown plc (company number 2122142).

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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