Remember the days when you could get penny sweets that actually cost one penny, when a whole round of drinks was less than a fiver, or when a trip to the cinema was a cheap night out? Today, cash feels like it doesn’t go very far and technically you’d be right – it’s known as inflation.
Think of when you blow up a balloon – that’s inflation in action and it’s the same concept when you apply it to money – but it’s an increase in prices rather than a bit of rubber; and just like when you blow up a balloon, inflation can go up or down.
At the moment, inflation is at 0.9%. All this means is that prices over the last year have increased by 0.9% based on the Consumer Price Index which is what the government uses to work out the value of pensions, benefits and wages. So, if you were to buy stuff worth £100 last year, this year you’d need to spend £100.90 just to get the same things. And unless your savings also increase by the rate of inflation, it means your hard-earned nest eggs won’t be worth as much when they hatch.
So, if you have a savings account then you need to make sure the rate of interest that you’re paid, is more than the cost of inflation. But with recent interest rates being at their lowest for years, that can feel like an impossibility. What’s a saver to do? Well, one answer is to open a cash ISA and because it’s tax free, you won’t pay any tax on the interest you make.
Alternatively, you could invest your money into a fixed rate savings bond. It’s similar to a savings account but rather than being able to dip in and out of your funds, a bond usually means you have to leave your money alone for a while. In return for not touching your cash, you’ll get a guaranteed rate of interest for the entire term which is usually much higher than other savings accounts.
So, whilst we mourn for the days when you could get change out of 20p for a bar of chocolate or fill up your tank with 28p a litre of petrol, you could still stay one step ahead of inflation – you just need to know where to look; and at comparethemarket.com, we can help you – let’s compare.