Money MATTERS INFLATION - The Silent Thief

Brian Mole Independent Financial Advisers Limited

Former US President Ronald Reagan once said that inflation is “as violent as a mugger, as frightening as an armed robber and as deadly as a hitman”. Is this an overreaction? Or was he onto something more fundamental? You hear lots of talk of inflation, Consumer Price Index (CPI) and the price level on the news, but do you really understand the effect of it? This week we take a more in depth look than usual at the dangers inflation can have on your finances.

Prices are rising at their fastest rate for 40 years as higher energy bills hit millions of households. UK inflation, the rate at which prices rise, jumped to 9% in the 12 months, up from 7% in March.

This inflation rate is okay in normal circumstances, if we have interest rates, especial on saving, increasing nicely as well, which gives you more interest on your savings. However, the huge problem at the moment is when you consider that the average interest rate you receive on a bank account will be around 0.1%, you are effectively losing money each year. Banks are forced to charge such low interest rates on accounts due to the Bank of England Base Rate being sat at 0.25%, the lowest rate it has ever been.to make a profit, banks and building societies cannot afford to pay out higher rates of interest to savers if the rates on loans are so low.the Base Rate transmits through the banking system due to the competitive nature of commercial banks, and it is savers who pay the price. Inflation of 9% means that the ‘general price level’ in the UK rises by 9% each year.this level is worked out by taking a ‘basket of goods’, totalling up the average price of it all and comparing it to the price of the same basket from the previous year. So, when you come to do your weekly shop a year on, you’ll find that it will be slightly more expensive, and your hard-earned money will not go as far as it used to.

Now, inflation is not necessarily a negative thing. In some instances, it indicates that the economy is growing, and industry is booming, whilst sometimes it can indicate some shortfall in the supply-side of the economy. However, to you and your finances it is mostly negative and really should be something you keep an eye on. Inflation can become especially dangerous to savings if they remain untouched and not topped up, as in 10 years they could have lost up to 50% of their value or more.the biggest losers at the present moment are savers in the banks and building societies in cash deposit accounts.

Maximise your ISA opportunity

Don’t miss out on the opportunity to invest in TAX-FREE ISA’S.

The limit in the current tax year (2022/2023) is £20,000.Therefore, a couple each investing the maximum ISA allowance could invest £40,000 into ISA’S.

Whilst, these are very impressive figures, it is essential to remember that a Tax-free Investment is only as good as any growth that is made! There is a vast range of different Cash ISA and Investment ISA providers and Investment Funds available, and an enormous difference between the historically best and worst-performing Funds. Many Cash ISA rates are well below 0.2% in instant access accounts, which I real terms means your money is reducing in value, as inflation in now 9%.

Many of our clients take an income from their ISAS, it is often very helpful to pay for holidays and treats. In retirement, ISA income can play a crucial part of monthly income as it is tax free, unlike pension income which is taxable.

We can help to make ISA Investment selection easier, so don’t miss out on making your ISA Contributions, and contact us for an appointment today.

Most people will not be in a position to make the absolute maximum contribution to ISA’S. However, we will be happy to discuss any level of ISA Contribution and ensure that it fits your future requirements.

If you have ISA funds, especially Cash ISAS from previous year’s contributions, then we can of course review these as well, to assess whether they are performing to your expectations. If appropriate, existing ISA funds can be transferred to a new contract without it effecting future contribution limits.

Many clients are now transferring existing Cash ISAS into cautious investment ISAS, these ISA investments are designed to have investment growth and therefore keep the value of your investments more in line with its real ongoing value.

When you contact us, there is no charge for an initial appointment, you can be assured of completely independent advice that will be provided in a friendly, personalised, and courteous manner, either at your home, or at our Offices.