Inflation is the enemy of wealth and cash savings suffer


Savers received a double dose of good news this week in the form of the best one-year fixed rate deal in almost 18 months and a Marcus rate hike.

First, Gatehouse Bank’s new 1.51% one-year savings bond – the first time a 12-month rate has crossed the 1.5% mark since May 2020.

The icing on the cake, the challenger bank promises to plant a tree in the British forests for each account opened.

It might be a bit of a gimmick for him to call the account a green saver and capitalize on the growing trend towards sustainable finances, but planting trees is the kind of marketing gimmick I can fully support.

Good news for savers arrived from Marcus this week with rates hike to 0.5% and 0.6% for existing clients

Gatehouse is Shariah compliant, so it cannot offer customers guaranteed interest, and instead the rate represents an expected rate of profit from the accounts.

The bank, which is covered by the £ 85,000 FSCS compensation scheme, previously wanted to point out to us that it is doing everything possible to achieve the quoted returns.

The one-year rate puts Gatehouse ahead of Sharia complaints bank Al Rayan, small business specialist Allica Bank and Oxbury Bank, which has its own green credentials by lending only to UK farmers and the rural economy.

The second piece of good news in savings came from Marcus, the savings brand of Goldman Sachs, which increased its Easy Access Account and Isa cashout rate from 0.4% to 0.5% for new customers.

However, what will be of particular interest to many readers of This is Money is that if you are an existing Marcus customer – like many of us – then you can ask for an even higher rate of 0.6%.

Most importantly, you must claim this rate increase. The new higher 0.5% rate will automatically be granted to existing savers, but to add the additional 0.1% bonus you need to log in and click a button to get it.

I almost missed this round with Marcus’ last uprising so make sure you don’t.

These latest movements are indicative of an environment in which savings rates are rising.

There are a lot of old, useless accounts that still pay 0.01% (like I said before, I’d rather get nothing but this insult), but look for the best new deals at the top of our savings tables and you will get a much higher fixed or easy-to-access rate.

Warning signs: Inflation is the enemy of wealth, eroding the purchasing power of your money and worsening this effect year after year

Warning signs: Inflation is the enemy of wealth, eroding the purchasing power of your money and worsening this effect year on year

The problem is that inflation is also on the rise and none of the savings offers on offer can match it.

Consumer price inflation climbed to 3.2 percent in August and is expected to hit 4 percent this year.

For the most part, the impact of the rising cost of living is probably even greater now and will continue to be: gasoline, if you can get hold of it, has jumped in prices, fuel costs. energy goes up and food bills go up. too much.

This list covers essential expenses, but the price of discretionary items also appears to be increasing. For example, many restaurants, pubs and other places of recreation and entertainment raise prices by charging their own higher costs.

Inflation above the interest rates offered means you are wasting money with cash savings.

Survey

How much money do you have?

  • Less than £ 1,000 32 votes
  • £ 1,000 to £ 10,000 62 votes
  • £ 10,000 to £ 20,000 50 votes
  • £ 20,000 to £ 50,000 97 votes
  • £ 50,000 to £ 100,000 99 votes
  • Over £ 100,000 281 votes

Even with that Marcus account at 0.6%, 3.2% inflation means a 2.6% annual attack on your wealth.

This means it is eroding the purchasing power of £ 10,000 at the rate of £ 260 a year – and be warned, just as interest can accumulate over the years, so too can inflationary erosion.

In a recent survey of 500 This is Money readers, 43 percent said they had more than £ 100,000 in cash savings, so for some people the effect of inflation on their wealth could mean a substantial loss.

I wish I could predict that savings rates will continue to rise and rise above inflation, but we are a long way from a return to normal in monetary policy and interest rates (and it is in the government’s interest to let inflation steadily erode UK debt while low rates reduce payments).

Ultimately, that means offense can be the best form of defense and once you’ve built up a rainy day pot that is kept safe in cash, you need to invest in the stock market for better returns.

Even if you only start doing it with a small chunk of your money – like 30 or 40 percent – it’s something.

A well-diversified equity portfolio has proven, study after study, to be your best bet to beat inflation and build wealth over time.

The simplest option is a large global tracker fund, or you can try to be smart and go for an active manager who is trying to beat the market but remember that maybe it isn’t.

A simple investment is fairly easy and inexpensive to do on your own, as this quick guide to getting started with investing, but if you have a lot of money at stake, it may be a good idea to speak to an independent financial advisor.

Whatever you do, fight inflation. It is the enemy of your wealth.

How to invest in the world

How the iShares Core MSCI ACWI ETF invests in the world based on the size of major stock markets

How the iShares Core MSCI ACWI ETF invests in the world based on the size of major stock markets

A global fund invested in stocks from around the world is a good building block for your portfolio, balanced either by cash or just a government bond fund, depending on how much risk you want to take.

A tracker or index fund will track a defined global index, which will be made up of the stock markets of different countries and the companies that make them up – usually by size and owning more of the largest companies. It simply buys the market and relies on the ability of companies to use their funds for productive purposes and to make a profit.

In contrast, an active fund manager will only select what they think are the best companies, which could increase your returns but also open the possibility of them getting it wrong and falling behind the market.

Here are some ideas for you to consider, based on our search for funds that are low cost, have a good track record, and make large-scale investments. Be sure to do your own research before investing and, if in doubt, seek professional advice.

Passive funds

Fidelity P Global Index Fund

This tracks the stock prices of a basket of companies that make up the MSCI World Index of Developed Markets.

Ongoing charges: 0.12%

HSBC FTSE C Global Index Fund

This follows a global equity index which also includes an element of emerging markets.

Ongoing charges: 0.13%

IShares Core MSCI ACWI ETF (SSAC)

This follows an index composed of both stocks of companies in developed and emerging markets. It is an ETF, therefore listed on the stock exchange.

Ongoing charges: 0.2%

Avant-garde life strategy

This very popular range of low cost funds invests in stocks and bonds from all over the world in different percentages, you can choose the one that suits you.

Ongoing charges: 0.22%

The ten biggest holdings of the iShares Core MSCI ACWI ETF, a list that highlights the size of some of the biggest US tech companies

The ten biggest holdings of the iShares Core MSCI ACWI ETF, a list that highlights the size of some of the biggest US tech companies

Active funds

Lindsell Train Global Equities

This fund buys and holds what highly respected managers Michael Lindsell and Nick Train consider to be the stocks of the best companies in the world.

Ongoing charges: 0.65%

Fundsmith Equity

Terry Smith’s fund invests in stocks of global companies that it sees as having a lasting advantage.

Ongoing charges: 0.97%

Baillie Gifford Managed Fund

Baillie Gifford’s managed fund invests globally, primarily in equities, with some bonds and cash. He owns around 75% of the shares, spread across four separate regional expert teams, giving him the autonomy to support what they believe are the best growth companies for at least the next five years.

Ongoing charges: 0.42%

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