How to protect your savings and pensions from UK inflation | Consumer Affairs

IInterest rates have risen again this week, which will boost rates for many savers, but rising inflation – currently at 9.4 per cent and set to go higher – is eating into the value of the cash people have hoarded.

Fears of a full-blown recession are growing as central banks around the world raise interest rates to fight inflation. So what can you do now to protect yourself from potential financial shocks?

Here we look at some options for protecting your savings and pension from inflation.

glue it all on gold

They say gold is a traditional safe haven against inflation – but not this time. It has fallen from more than $2,000 (£1,655) an ounce to around $1,750 an ounce since March and is back to levels last seen around two years ago. In GBP terms, it’s doing better because the dollar has risen a lot against the pound.

If you do want to speculate on gold, you don’t have to buy a Kruger (South African gold coin). You can make small investments through “exchange-traded funds” – for example, Invesco Physical Gold, which holds the shiny stuff in the vaults of JPMorgan Chase Bank in London.

Gold has fallen to around $1,750 an ounce from more than $2,000 in March. Photo: ImageBROKER/Alamy

tuck it under the mattress

This is the dumbest thing you can do with your money. First, if your house burns down or money is stolen, home insurance policies usually only cover £500 or £1,000.

Second, inflation means that cash has been losing value.

All in a high-interest savings account

This only makes sense if such a thing exists. On Thursday, the best rate on OakNorth Bank’s one-year fixed-rate bond was 2.85%. Even on a five-year bond, the best you can get is 3.4%. Meanwhile, many high street banks are making tiny payments on their cash Isa accounts.

That said, aim to keep a rainy day savings equal to three to four months of your spending. It won’t be easy, however, as so many households in the UK are facing what consumer advocate Martin Lewis calls a “national financial catastrophe”.

buy shares that others have sold

possible. However, only speculate in this way if you can afford to lose. U.S. tech companies have been the most “frustrated” stocks in recent months. PayPal plummeted from $285 a share a year ago to around $98 this week. Meta (Facebook) fell from $370 to around $170, while Netflix fell from $600 to around $225 this year alone.

Scrabble board with cash, shares and Isa written on it
Never invest your money in equities if you can’t afford to lose, and many high street banks pay insignificant amounts on their cash Isa accounts.
Photo: Andrew Patterson/Alamy

But remember the old stock market adage: “Don’t catch a falling knife.” Just because a stock has fallen 50% in the past year doesn’t mean it won’t fall another 50% in the year ahead.

Finding Boring Investment Trusts

Some investment trusts, with a track record dating back more than a century, hold large stocks of relatively low-risk companies and have a good track record of regular dividends even during recessions. In these markets, boredom may be wise.

Dzmitry Lipski, head of funds research at Interactive Investor, said: “A good one-stop global investment shop is F&C Investment Trust, which is looking to raise its dividend again this year for the 52nd year in a row. Trust, a company that can continue to raise its dividend can provide additional comfort — its 154-year track record means it’s been through a lot of ups and downs.”

Interactive Investor also likes Capital Gearing Trust and Personal Assets Trust.

Read our online investing guide at

drive down your pension

Even the humblest employee with a small working pension has the right to swap funds in the pension. But be careful.

“It’s not a good idea to sell and cash out,” said Helen Morrissey, a superannuation expert at investment firm Hargreaves Lansdown. She adds that superannuation is a long-term investment and if you hold too much of cash, your superannuation is likely to be eroded.

Big pension funds haven’t fared quite as badly over the past year, despite sharp losses on Wall Street and across Europe. Nest’s (National Employment Savings Trust) default fund (2040 retirement date), which holds the pension savings of millions of newly hired UK workers, has actually risen in value over the past year, although only a few percentage point.

go with smart money

Who warned about inflation, financial market exuberance, and serious cryptocurrency risks last May? 91-year-old legendary American investor Warren Buffett. Since then, inflation has soared, the tech-heavy Nasdaq has fallen by about a fifth, and cryptocurrencies have collapsed.

Buffett said, “Be fearful when others are greedy, and be greedy when others are fearful.”

What is he buying now? oil company. He alone has invested $27 billion in shares of Occidental Petroleum and Chevron. It paid off: Occidental shares are up about 100% this year — not that anyone worried about the climate emergency is likely to follow suit.

Warren Buffett
Veteran investor Warren Buffett has been buying shares of oil companies. Photo: Nati Hanick/Associated Press

Buffett is also a big investor in Apple, whose shares have fallen nearly 10% this year. As Apple’s stock price fell, he continued to buy more apples.

Britain’s response to Buffett was Terry Smith, who said in a July letter to investors that he was “not optimistic” about the threat of continued interest rate hikes.

Investors should continue to focus on companies with consistently high profit margins, he said. He added that bonds were “certainly not suitable in this context”, while real estate and real estate were “notorious local markets with illiquid liquidity and high frictional transaction costs”.

If you like Buffett’s voice, you can buy shares of his conglomerate Berkshire Hathaway. Smith’s fund business is called Fundsmith.

Do nothing, just wait and see

If you are under 50, this is not a bad strategy. When the market goes down, comfort yourself that your monthly pension contributions are buying more shares (long term) than before.

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