Savings ‘trick’ and way to get ‘greater growth potential’ explained as interest rates held

Inflation: Expert discusses Consumer Price Index rise of 2.1%

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The Bank Rate was first slashed to this record low in March 2020, in response to the coronavirus pandemic. At the MPC’s meeting ending on June 22, 2021, the Committee voted unanimously to maintain the Bank Rate at 0.1 percent.

It came a week after the latest rate of inflation in the UK figures were released.

The Consumer Price Index (CPI) increased to 2.1 percent in May 2021, up from 1.5 percent in April, surpassing the Bank of England’s target of two percent.

Following the release of the minutes from the latest Monetary Policy Committee, Kevin Brown, savings specialist at Scottish Friendly, commented on the news.

“Inflation has become the elephant in the room for the Bank of England’s monetary policy committee as it shows no signs of directly addressing the sharp rebound in prices,” he said.

“The Bank is sticking to its guns that inflation will soon fall back below its 2.0 percent target once the economic imbalances between demand and supply are ironed out.

“But this could be a dangerous game to play as it has so far misjudged its inflation forecasts during the recovery and if it continues to underestimate price growth it could find itself firmly on the back foot.

“In the meantime, households are trying to make their own judgements about how to balance spending and saving as the economy fully opens up.”

The savings specialist went on to discuss how members of the public may be able to make their money work harder.

“For savers, the trick is to move quickly,” Mr Brown said.

“Savings rates have stabilised but remain low and if inflation ticks upwards then your cash is going to steadily lose value.”

So, how can savers minimise the impact of a surge in inflation?

“To limit the damage, people should shop around to find the best deal they can,” the savings specialist commented.

“Even if you can’t beat inflation it’s worth trying to minimise your losses.”

While it won’t be right for everyone, Mr Brown also highlighted potential returns on investments.

That said, with investing, it’s important to be aware capital is at risk.

Mr Brown said: “Also, it’s worth remembering that if you don’t need ready access to your cash and want to save for the long-term, then stocks and shares can offer greater growth potential.”

Sarah Coles, personal finance analyst at Hargreaves Lansdown, also commented on the latest decision and its impact on savings.

“Inflation is set to go above three percent this summer, dealing yet another horrible blow to savers,” she said.

“Right now, however long you’re prepared to fix your savings for, you can’t get more than 1.65 percent (Shawbrook Bank over seven years). Savers might feel they’re fighting a losing battle to stay ahead of inflation at the moment, but they can’t afford to give up.

“Rates aren’t much to write home about, but that doesn’t mean you should shrug your shoulders and settle for 0.01 percent from a high street bank.

“Nobody putting £30,000 aside for a year should have to settle for £3 of interest when there’s £150 available from a newer bank or £300 if you fix for a year.

“We should all have three to six months’ worth of essential expenses in a competitive easy access account, and at the moment, the best you can make on this money in an account without restrictions is 0.5 percent.

“We can’t afford to risk going without these emergency savings. If the past year has taught us anything it’s that life is desperately unpredictable, and having a safety net to fall back on can make a massive difference.

“Once you have your emergency fund, you also need cash savings to cover the money that you’re planning to spend in the next five years.

“However, the chunks of it that you don’t need to spend in the next year can be tied up in fixed rate accounts for the most appropriate periods. At the moment you can make one percent by fixing for a year and 1.15 percent by fixing for two.”

Ms Coles also shared some of her expertise on investments.

“If you’re putting the money away for five to 10 years or longer, it’s well worth considering investments,” she said.

“These will rise and fall in value over the short term, but over the long term stand a much better chance of beating inflation.

“It’s worth knowing that these are your options: a guaranteed lower return or more risk in return for more potential growth.

“If the Bank’s inflation warning persuades you to go searching for an alternative, and an internet search suggests you can make over three percent without taking a risk, then there’s a serious danger that you’re being lured in by a scammer.”

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