Share this article

What can be said about inflation and interest rates? The numbers speak for themselves. The Bank of England current base rate is 0.1% and target inflation rate is 2%.

In other words, if you were to start with £50,000, based on an inflation rate of 2% per year, the estimated value of your money in ten years’ time might be £41,017.

Even though the current inflation rate is 0.6% (down from 2.75% in 2017), it’s projected that it will increase at a steady pace in the next few years.

Inflation graph Statista 2021

Source: Statista 2021

Inflation is defined simply as a ‘measure of the increase in the price of goods and services over time’. This is reflected in the increased cost of living. This not only affects our daily grocery expenses but can have a larger impact. Controlled inflation is useful for growth in the long term, but careful planning of cash savings is vital.

A rise in inflation results in the reduction of your money’s purchasing power, as you’re now able to buy less for the same sum.

Many will recall their parents or grandparents emphasising the importance of building your savings in a bank account. This strategy worked for them in those days when rates of interest were much higher. However, if your aim is to build wealth in the long term, it might not be a wise strategy to save your hard-earned cash in a bank account these days, where interest rates are comparatively low. Nonetheless, retaining cash reserves does have an important place in overall financial planning and should not be dismissed completely.

Cash savers who are relying on building retirement savings could be badly hit if the interest rate remains low alongside rising inflation. As such, alternative strategies should be considered and explored, not only to keep your wealth in line with inflation, but to potentially create higher growth in the longer term. As with all investments, risks apply.

For retirees, having a pension that guarantees an inflation-linked income is a great advantage. However, those retirees who rely on Defined Contribution schemes should be careful with the cash exposure in their portfolio since low interest rates can erode future wealth.

We would also urge savers to be aware that cash savings are considered to be very low risk investments and hence can be used carefully in situations where regular income is needed. Even though cash savings provide low returns, they can shield the overall portfolio from volatility (especially when you rely on the portfolio for income).

As with all financial planning, it’s important to have a holistic view and not to think about cash savings in isolation.

If you’d like to discuss cash savings or retirement planning with a financial adviser, please contact us today to arrange a meeting.




If you would like to know more about how we as Financial Advisers can help you  with your Pensions and overall Retirement Planning then visit the Retirement Planning section of  our website: Retirement Planning  or send us email at: [email protected]

The information contained in our website is for guidance only and does not constitute advice which should be sought before taking any action. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Fiducia Wealth Management Limited, or any associated companies or persons, its officers or its employees, for any loss occurred in connection with the content hereof and any such action. Professional financial advice is recommended for every case.

Fiducia is a multi award-winning firm of Financial Advisers based in Dedham near Colchester situated in the heart of Constable Country on the Essex Suffolk border.

Fiducia Wealth Management Ltd. Dedham Hall Business Centre, Brook Street, Dedham, Colchester, Essex, CO7 6AD.

Fiducia Wealth Management Ltd. is authorised and regulated by the Financial Conduct Authority.. FCA No. 408210