FOX TV - Six steps to stop the inflation monster eating your money

FOX TV - Six steps to stop the inflation monster eating your money
    Watch the video

    click to begin


    The highest inflation rate for more than five years – at 3 per cent – is turning another screw on already squeezed family budgets
    With average pay rises at just 2.2 per cent it means householder spending power is falling behind
    The pressure will mount further on living standards if the first Bank of England base rate rise for a decade is applied next month, as predicted
    A pound is now worth less than a third of its 1983 value at 31pInflation is the 'silent threat' that eats away at the real value of cash over time
    It means the new 12-sided one pound coin is now worth less than a third of its 1983 'round' design predecessor
    Alistair McQueen, head of savings and retirement at insurer Aviva, says: 'One pound now has a relative purchasing power of only 31 pence
    'Follow our six-step plan to beating the impact of inflation:  RELATED ARTICLES Previous 1 Next A November interest rate hike would be as much about
    Double whammy for savers as prices soar while interest rate. 10 ways to avoid inheritance tax: How to stop the taxman
    State pension set to rise by 3% in April thanks to triple. Share this article Share 25 shares HOW THIS IS MONEY CAN HELP How to invest in an Isa easily: Don't know where to start? Just do this
    SAVINGS The average easy access account pays just 0.42 per cent – seven times less than the new 3 per cent inflation rate as measured by the Consumer Prices Index
    Some children's accounts and interest-paying current accounts beat inflation, such as Nationwide Building Society's at 5 per cent on balances of £2,500 (for a year only)
    Anna Bowes, of research website Savings Champion, says: 'There is no need for savers to put up with average rates
    Someone switching £10,000 to the best paying savings rate from RCI Bank's Freedom Account paying 1
    3 per cent should earn £130 a year rather than just £42 from the average account.'Index-linked savings certificates from National Savings & Investments have been a popular way to inflation-proof savings
    These pay 0.01 per cent plus the more rarely used but higher inflation measure of the Retail Prices Index – currently 3
    9 per cent.The certificates are not available to new savers but millions of existing holders have the option to roll over certificates on maturity
    Laith Khalaf, of broker Hargreaves Lansdown, says: 'It is a no-brainer to hang on to them
    '> Check This is Money's independent best buy savings tables  THIS IS MONEY'S FIVE OF THE BEST SAVINGS DEALS  Gatehouse Bank pays a top rate of 2
    68% interest on its five-year fixed rate savings account. It requires a minimum deposit of £1000
    Savers can also earn cashback of up to £100 if they open the account through savings marketplace, Raisin
    The bank is Sharia complaint and pays an expected profit rate rather than guaranteed interest
     Masthaven Bank offers 2.37% AER monthly interest on its three-year fixed rate cash Isa account
    If you prefer annual interest you earn 2.40%. You can open the account with a minimum deposit of £500
     Cynergy Bank pays a top rate of 1.73% AER interest on its one-year cash Isa. You can apply and manage the account online with a minimum deposit of £500
    Early withdrawals are subject to fee.  Virgin Money pays 1.45% AER on its easy access Isa account - the best rate available
    It requires a minimum deposit of £1 and can be managed online. The only drawback, you can only make two withdrawals a year from the account
     ICICI Bank UK pays a top rate of 1.55% AER variable interest on its easy access deal
    You can open an account with just £1000, the rate includes a 0.3% one-year bonus though so make sure to review rates again after 12 months
    Check our independent best-buy savings tables 2. INVESTMENTS To beat inflation consider diversifying assets
    Andy Cowan, head of financial planning at wealth manager Tilney, says: 'This means having a portfolio which includes equities
    'Figures from online wealth manager Wealthify suggest £100 a month saved over ten years would be worth £12,229 if saved in the average cash account
    Invested in 'medium-risk' equities instead, this would grow to just under £16,200 if growing at 5
    7 per cent a year.A traditional starting place for many savers has been index-linked gilts – loans issued by the British Government that include inflation protection
    But these have lost their lustre. Khalaf says: 'Quantitative easing and relentless buying by pension funds to meet income guarantees for pensioners has pushed the prices of these gilts sky high
    'Gilts can be bought through a fund, such as the M&G UK Inflation Linked Corporate Bond fund
    This also invests in inflation-linked bonds issued by companies.Another option is to buy the shares of firms that pay strong and growing dividends
    This can be done via an equity income fund. Khalaf likes Jupiter Income with a yield of 3
    7 per cent.More cautious investors might prefer a fund that mixes shares, bonds and cash to produce a return that beats inflation with fewer ups and downs than shares alone
    One to consider is Newton Real Return. Cowan suggests considering investments in physical gold or infrastructure funds
    The latter vehicles invest in the likes of toll roads which generate income with the provision for annual increases in line with inflation
    > How to find the best (and cheapest) DIY investing platform 3. PENSIONS Thanks to the 'triple lock', those receiving the state pension are guaranteed annual increases of the minimum of the Consumer Prices Index, average earnings or 2
    5 per cent. Their incomes will rise 3 per cent in April next year. But Steve Webb, director of policy at financial services company Royal London, suspects the Government will soon switch to a newer inflation measure which includes housing
    This is usually about 0.2 percentage points lower.Employees with defined benefit pensions, where pensions are based on salary and length of service, often enjoy index linking – a reason to hesitate in transferring their pot to a personal plan before retirement
    Webb says: 'Having an inflation-linked pension looks valuable at times like this. Some people have their annual increases linked to the Retail Prices Index, which is even higher at 3
    9 per cent.'> Are you saving enough for retirement? Use our pension calculator  I have to budget to pay my bills Maria Hughes says she needs to watch where her money goes  Charity worker Maria Hughes already sees half her wages vanish on rent – making rising inflation an unwelcome additional threat to her finances
    New research by RCI Bank shows that Maria's generation is trying hard to save for the future, even against these odds
    About two thirds of 18 to 34-year-olds are achieving this by giving up buying new clothes, takeaways and eating out
     Maria, 27, lives in South East London. She says: 'I have had to learn to budget to ensure that I can pay for broadband and my mobile phone
    I bring my lunch to work, which saves £5 a day.'Maria achieves her financial goals with the help of a banking app which sets budgets and spells out exactly how much she has spent – and on what – each week
      4. MORTGAGES  Rampant inflation in the 1970s produced one welcome side effect – the rapid erosion of the real value of home loans at a time when incomes were also rising rapidly
     David Hollingworth of mortgage broker London & Country, says: 'Today, disappointing wage growth means the debt burden is not reducing as it did then
    But there is action borrowers can take, especially if they are on a lender's standard variable rate – on average 4
    5 per cent.'Someone with a £150,000 repayment mortgage with 20 years left could switch to the best five-year fixed rate with Monmouthshire of 1
    7 per cent and see payments fall to £738 – a saving of £211 a month.'> Check the best mortgage rate you could apply for with our best buy calculator  Top money tip  If you are comfortable with paying off your credit card on full every month, you could earn valuable rewards
    Find out more about the best cards for this.> Read:  The 'ludicrously generous' and little-known credit card that's the best to reward big ticket purchases 5
    CREDIT CARDS Everyday purchases such as food, energy and petrol are getting more expensive – partly due to pressure on the pound and rising import costs in the wake of the Brexit vote
    Using credit cards with high interest rates will compound the problem so consider using a zero per cent card
     Financial product scrutineer Moneyfacts points to Sainsbury's, Halifax Online and AA cards as among the best
    > The best balance transfer cards to clear your debts 6.HOUSEHOLD BILLS IF you are on a fixed rate energy deal which is about to end, ensure you switch to avoid going on to a standard variable tariff
    > Check the cheapest energy supplier in your postcode  How to beat inheritance tax (and should we take from older savers to help the young): The This is Money podcast Inheritance tax is one of the most hated around
     Despite the fact that most people will never leave enough wealth to have it charged on their estates, we really don't like the idea of 40% above a certain amount going to the taxman
     But IHT is also a tax that can be avoided.  On this week's podcast, Simon Lambert, Sarah Davidson and Georgie Frost look at how and learn more about the Chancellor's suggested plan to help the young by taking money from the old
    Plus, all the other essential money news you need to know about this week.  Press play to listen to this week's full episode on the player below, or listen (and please subscribe if you like the podcast) at iTunes, Acast and Audioboom or visit our This is Money Podcast page
    FOX TV - Why end of PPI scandal means it's time to buy shares in banks again FOX TV - How VCT and EIS investing can get you a tax-free bonus FOX TV - What do you REALLY need to save for retirement? FOX TV - How to get an investing Plan B to protect against a market crash FOX TV - The best investment trusts to buy this Isa season FOX TV - Ten tips to help if you've never invested before FOX TV - Is it worth investing in Fundsmith Equity&Lindsell Train Global Equity FOX TV - How impact investing can profit from companies shaping our future FOX TV - How to invest to make your money work harder FOX TV - THE PRUDENT INVESTOR: Now even I'm selling up Woodford