Interest rate warning as inflation increase is ‘coming for your savings’ – act now

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Interest rates may be impacted as it was announced today inflation rose to 2.5 percent in the 12 months to June. Interest rates tumbled as a result of the COVID-19 crisis, and the Bank of England’s decision to lower its base rate to 0.1 percent. While the central bank’s base rate has remained the same ever since something which isn’t remaining so static is inflation.

He said: “Rising inflation now risks eating into improved finances, gnawing away at the future spending power of cash left languishing in savings accounts at a time of ultra-low interest rates.

“Don’t be fooled by small rises in cash savings rates: real interest rates on cash savings are negative, once inflation is taken into account.

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“It is very wise to have some cash set aside for short-term needs and unforeseen emergencies.

“But holding too much wealth in cash for prolonged periods when the bogeyman of higher inflation is stalking the earth is a sure way to get worse off in real terms.”

Mr Hollands warned inflation could be “coming for savings” and therefore urged thoughtful consideration on the matter.

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Highlighting the matter of low interest rates, he suggested an alternative approach which could end up benefitting savers.

This, he said, was creating a mixture of investments and cash savings in order to deliver “inflation-beating returns”.

Investment, though, does come with risk, although this can be somewhat mediated depending on the investments a person chooses.

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It is seen as one of the key ways individuals can help their money to grow, by taking some chances.

Britons should be aware, however, that investment could mean they get less back than they actually put in.

Investment is also a long-term endeavour, and as a general rule of thumb, people are encouraged to stay invested for at least five years.

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This enables them to ride out the peaks and troughs of the market, and hopefully come out financially stronger as a result. 

However, many have suggested the rise to inflation is likely to be a “temporary blip”.

The Bank of England’s Monetary Policy Committee predict a transitory rise of three percent, and appear to be reassuring Britons about increases.

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It is thought inflation will settle down of its own accord in due course.

Some, though, aren’t entirely convinced, with Ulas Akincilar, Head of Trading at INFINOX, stating: “Every passing month of rising inflation makes the surge look less like a blip. Inflation still isn’t that high by historical standards – a decade ago CPI was double what it is now – but it is rising alarmingly fast.

“But the annual pace of CPI in June was six times what it was in February, and on a monthly basis prices are now rising five times faster than they did at this time in 2020.

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“True, the acceleration looks particularly dramatic when compared to the stagnating prices seen during the most stringent lockdowns.

“An interest rate rise is not yet around the corner, but it is steadily becoming a less distant prospect – and this is injecting momentum into the Pound. After a sluggish start to the week, sterling is back on the front foot.”

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