Inflation is like a hole in every saver’s pocket

INFLATION is a global concern at the moment. In China, rocketing food prices have pushed up inflation to 4.4 per cent, prompting a 50 basis point rise in interest rates and a short crash in global equity and commodity prices. That must be galling for British savers – according to the Office for National Statistics; British inflation is almost as high as China’s, and no interest rate rise is forthcoming. The retail price index increased by 4.6 per cent in October, while the co nsumer price index increased by 3.2 per cent. Far from earning a return, savers are seeing their money steadily eroded in value. What can they do about it?

Well, the first thing is to look for higher interest rates. According to, to beat inflation, a basic rate taxpayer will have to find an account with a return of 4 per cent, while a higher rate taxpayer will need to earn 5.33 per cent. To get those sorts of returns, most savers will have to lock in their money for a long time – the State Bank of India offers an account with a return of 4.5 per cent to people willing to commit for five years, as does the AA. Savers would be advised to use up their ISAs first though – few pay more than 3 per cent, but unlike most savings accounts, interest is tax-free.

A better option might be to stop being a saver. The Bank of England is keeping interest rates low not so much to deliberately punish savers but rather to encourage people to either spend their money or to put it into riskier assets. It is now possible to invest as much as £10,200 in a stocks and shares ISA, which attracts no income or capital gains tax, while shares are still arguably relatively cheap.

But with the VAT rise kicking in at the New Year, there is one other solution. Stuff is only going to get more expensive. Perhaps the best way to beat inflation is just to buy as much you can possibly can now.