The UK is in the grips of severe economic crisis, and one which has had multiple triggers and catalysts over the last few years. Downturns in business performance over the pandemic were compounded with a shock rise in the rate of inflation, itself caused by barriers to international trade.
Today, the rate of inflation remains above 9% – representing a major threat to the average UK household’s cash holdings. With your savings effectively losing value each day, what can you do with your money to combat the rate of inflation?
High-Interest Savings Accounts
In recent history, savings accounts have not been the best option for passive growth of wealth. Since the economic crisis of 2008-9, interest rates for savings accounts sat below 1%, making for slim gains over time. But in response to the rising rate of inflation, the Bank of England has moved to increase interest rates – and been forced to push them even higher in response to the government’s pro-growth ‘mini-budget’.
The result is a growing competitive market for savings accounts, in which certain limited access savers offer impressive rates of interest. These interest rates still do not touch the rate of inflation, but are good breakwaters nonetheless; they can help reduce the impact of inflation on your spending power while you make more robust long-term plans.
The UK’s recent economic crises have resulted in some interesting behaviour with regard to the value of the pound. As a direct result of the aforementioned ‘mini-budget’, the pound fell to near-parity against the dollar for the first time in decades. This makes the cost of importing much more expensive, which threatens the inflation rate even more.
However, the volatility of the pound presents a clear opportunity on the forex market. Those with a little more understanding of the budget’s implications were able to hedge against the pound, buying dollars before the fall and preserving the initial value of their investment. By buying back pounds now, forex traders increase their holdings dramatically. With the pound set to rise again, and the dollar continuing to grow, now could be a good time to actively grow income on the forex market.
The Lifetime ISA (or LISA) is a relatively new financial product which allows savers to take advantage of government subsidy in specific scenarios. The LISA enables you to save up to £4,000 tax-free each year, with the government topping up your savings by 25% each year. The caveat is that your savings must be spent on either your first home, or on retirement, otherwise a 25% withdrawal fee applies.
In practice, this is the highest ‘rate of interest’ you can achieve without active market engagement – and if your LISA is a Stocks and Shares ISA, you could be eligible for further returns through active market engagement anyway