Inflation is something that has been dominating the headlines in recent years. It has been a key driver of the cost of living crisis that has affected much of the UK. And with conflicting reports saying inflation is set to be too low in years to come, after being too high, it can be confusing.
So, what is inflation and what are some steps you can take to avoid its negative impacts? Here’s what you need to know.
What is inflation?
According to Money Helper, inflation is when money loses value over time. The impact of inflation rising means that the cost of living is generally higher due to goods and services being more expensive.
If the inflation rate is 1%, this is considered lower inflation and would mean that the purchasing power of money is 1% less a year later. Meanwhile, 5% is considered higher inflation in this context.
How can you beat it?
There are several things you can do to ‘beat’ inflation, so to speak.
Firstly, find a good savings account to store your money in so that you build interest over time. If you keep your money in your current account, you won’t see your money increase as it won’t rise if a very low interest rate is attached to the account. Don’t end up in a position where you’re essentially losing money.
Have a look online to compare savings accounts and see which could be the best option for you and your savings. Some people even get benefits when moving to a new bank, so consider this too. Just remember that changing banks too often could impact your credit score.
Investments
You could also look into investing if you want steady growth over long periods that will beat inflation. For example, you might research the S&P 500 stock index or you could take part in stock trading yourself by investing in individual shares of a company. A reputable trading platform will have all the helpful features and resources you need to get the most out of the experience. Take the time to build your strategy and use risk management functions to help protect your investments.
It’s important to note that past performance won’t guarantee future results.
Government schemes
It’s always worth looking out for government schemes that could apply to you. In the UK, you can apply for schemes associated with saving for a home, such as the Lifetime ISA. Otherwise, you can look into schemes that can help you save on energy bills or for retirement. New grants are being created all the time, so it’s well worth looking into those on offer. Often, new schemes will be announced after a new Budget has been announced by the chancellor.
Savings
Make sure you have an awareness of the fact that purchasing things when inflation is high will cost more. This is key when looking at large investments such as vehicles and property. It may be sensible to wait a little longer, continuing to save in the meantime before making these investments. Similarly, it might be better to avoid long-term finance deals while interest rates are high. This could include car finance deals, for example.
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