Inflation is getting beyond a joke. Here are some tips on how to beat it

Written by Rebecca O'Connor on 13th June 2017

There’s little certainty around at the moment – but one thing we can be sure of is that prices are rising. Faster and faster. Inflation now stands at 2.9 per cent and that figure looks set to begin with a 3 next month.

We’ve written about rising inflation almost every month since the Brexit vote. Check out some of these recent posts:

Nowhere to run, nowhere to hide.. from the inflation monster

Inflation crashes through government target to 2.3%

House prices: down. Inflation: up. Wage growth: static. What’s next?

The bad news is the weak Pound, caused by the triggering of Brexit, looks set to continue its general downward trend. The General Election result will not have helped. There’s no obvious end in sight.

In case you are wondering why all this feeds into price rises, it’s because we import a lot (we don’t make a lot of our own stuff). With a weak Pound, the stuff you buy from abroad, such as cars, fruit and vegetables and oil, all costs more, because each Pound we have buys less.

So. What do we do?

Below are some indispensable tips to reduce the impact of inflation on your money and your life.

The general theme is to spend less, unfortunately, there is no way around that (and the latest consumer spending figures from Visa suggest people are doing exactly that). But what else?

Spending

It’s not just how much you spend – it’s where you spend it.

  • Look to buy British wherever possible. Fruit and veg that is seasonal and grown or produced in Britain is already starting to compare more favourably to imported produce (have you seen the price of parmesan lately?!) Stick with what’s on offer at the supermarkets, bulk buy when it brings the unit cost down significantly and try shopping little and often to reduce waste. If you are a Waitrose fan, give Aldi or Lidl a go – you might be surprised. Buying gifts or other non-essential items? Voucher codes websites are your friends. Quidcovouchercodes.co.uk and promotionalcodes.co.uk are among the biggest in the UK.
  • British cars still use parts from abroad, so prices of domestic models will still rise, but perhaps not by as much as those made overseas.
  • Clothes too are often made overseas and will therefore be carrying higher price tags. eBay and pre-loved sites, as well as second hand shops (in expensive areas for the best bargains) are the obvious destinations.

Savings

  • Move your savings higher up the risk curve. It’s the last thing the risk averse saver wants to hear, but leaving your money in a low paying cash account is a mug’s game, unless you are going to need that money fairly soon. Anything under 2.9 per cent, which most savings accounts currently pay because of low interest rates, is losing you money. The problem is that higher paying investments come with more risk. But it could be worth educating yourself. Wherever you put your money, make sure you use up your tax-free allowances first. You can save up to £20,000 this year in ISAs including Stocks and Shares (see our guide), Innovative Finance ISAs, Lifetime ISAs, Help to Buy ISAs and Cash ISAs.
  • Peer-to-peer lenders such as Zopa and Ratesetter beat inflation and are the next step up the risk ladder from savings accounts. Some of them offer returns tax-free through IFISAs, though not all platforms offer these yet. Generally speaking, we also like these platforms because they give you some degree of control over what your money is funding – you can choose renewable energy projects or small British businesses you like, for example. They also have a positive impact on the financial services industry, by breaking the hold on lending that the big banks have. Here is a list of a few eye catching rates:
  • Assetz Capital is offering a target 5.5 per cent return on a Property Secured Investment Account (PSIA), which is backed by loans secured against property and has a reserve fund,which Assetz can use to pay returns should the loans fail. More info here*. Assetz Capital also offers a Green Energy Income Account targeting 7 per cent a year and a Great British Business Account with a similar return.
  • The Green Deal Finance Company is having a revamp after being ditched by the Government in 2015, buoyed by interest from consumers in energy efficiency measures that can be paid for using loans, which are then repaid through energy bills. It is raising more than £4mn on Abundance Investment to invest in its new launch and offering 12 per cent a year for three years. More here.  This loan, along with others on Abundance, can be put in an IFISA, which counts towards your annual £20,000 ISA allowance. If you want to know whether an IFISA is right for you, you can download our guide.
  • Other IFISA peer-to-peer lending platforms to think about are Zopa, the biggest in the UK, which lends to individuals, or Ratesetter, another well-known name that also lends your money out to individuals. Crowd2fund*, which was one of the first platforms to be authorised by the regulator to offer IFISAs, allows you to choose the projects you would like to invest in. Proplend loans are secured against commercial property and returns are between 6 and 12 per cent, according to the website. You can register to lend here.* Lending Crowd* offers around 6 per cent for lending to small businesses using its platform and Lending Works*, around 4.5 per cent to lend to other people. The returns are based on the credit risk presented by the borrowers, so it is still possible you won’t get the return quoted.

Equities

Shares in companies either held in funds or individually, are arguably another step up the risk curve, but can yield significantly higher returns than cash, or peer-to-peer loans (the risk is, of course, that they can actually lose value and even lose you all of your capital).

As James Henderson, of the Lowland Investment Company says: “Savings in cash have paid an average £138 per year for a £10k investor since 1997. However, they are now returning just £22. It’s a similar story for government bonds that were bought to mature after 20 years in 1997. These would have yielded investors a return of around 7.5% whereas a 20 year Bond bought today will lock money into a low return of around 1.5%. In 2017, £10k of equities bought at the end of 1996 will yield £704 in 2017. This means that equity yields can provide a real income.”

  • Check out our just published Good Investment Review for funds that are top-rated by 3D Investing for good returns as well as for making a positive impact. Some of the funds with the highest rating of five stars include the Colombia Threadneedle Social Bond Fund, Impax Environmental Markets and Assura. For companies listed on the stock exchange that are doing good, check out the Shape App, which categorises Plcs according to their impact.

Pensions

  • Make sure you are paying into one. Pensions attract tax relief, which means a further boost to your pot of 20 per cent if you are a basic rate taxpayer or 40 per cent at the higher rate. That’s quite a lot more than the piddly instant access cash account will pay you, so if your savings are for retirement, a pension rather than cash is a no brainer. Aviva, NEST and Standard Life all stand out for efforts to invest customers’ pensions in line with Responsible Investment Principles, and so are worth checking out if you are arranging your own.
  • Another thing: make sure you aren’t wasting thousands of pounds in unnecessary fees to pension fund managers. PensionBee is an online platform that brings together all your old schemes and invests them in a cheaper tracker fund, instantly boosting your potential pension pot by £1,000s.

Currency

The FX specialists are saying to buy foreign money now if you need it, for an upcoming holiday, for example. That’s because they expect the Pound could further weaken. If you want to transfer money abroad, take a look at Ethical Currency*, listed in our directory of impact financial services because it donates to good causes globally. Finder.com, a new price comparison site, offers a comparison of travel money providers here, with the WeSwap pre-paid card currently coming out top for value. Revolut cards also enable you to spend for free abroad, at the real exchange rate.

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