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Inflation drop provides little respite as savers hoard cash

16 December 2020

If you are covering the news that inflation fell to 0.3%, please find below a comment from David Gibb, chartered financial planner at Quilter, discussing what this means for savers:

“Today’s inflation figures provide consumers with a small bit of respite but will do little in the long-term to mitigate the pain of rock-bottom interest rates. Just this week research from Moneyfacts showed that savings rates across the board have more than halved in the last year, and are vulnerable to any sort of pickup in inflation in the coming months. Now is the time to assess your saving habits to ensure when an uptick comes, you are prepared for it.

“With the Bank of England set to keep interest rates historically low over the next few years as the economy recovers, cash is no longer the safe haven we once considered it to be. Even with inflation at such a low point, savers are still getting a paltry return, and one that is unlikely to grow their wealth significantly in the long-term. Given the amount of cash accumulated by the nation this year as a result of various lockdowns, we are staring at a cash crisis of a different kind as huge amounts stashed away fail to keep up with the cost of living.

“Of course, people should still ensure they keep emergency savings in cash so it is easily accessible should they ever need it, but even for this pot they need to make sure they are shopping around to find the best rate.

“Any surplus money needs to be put away for the long-term in a diverse mix of investments in order to generate real returns on your savings. Interest rates are going to remain at these low levels for a considerable amount of time now, so with inflation so low it has become more important than ever to begin that investing journey and make your money work as hard as it can. It can feel daunting at first, but investing money for at least five years will give you the best chance to grow your savings a lot quicker than a cash savings account could do.”

Gregor Davidson

External Communications Manager