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How to combat the effect of inflation on your savings

Date: 13 July 2022

Many families are feeling the pinch as the price of petrol, food, and general living costs goes up. Rarely out of the headlines, this increase in the cost of living – called inflation – can cause real problems for the value of your money, even for those with significant savings.

What’s causing the problem and how bad is it?

Historically, over the long term, inflation has averaged at around 2.5%*.

Due to disruption in the world’s supply chains caused by the global pandemic and the war in Ukraine, inflation has soared to over 10% in the previous 12 months (to July 2022), and the Bank of England has forecast that it’s likely to top 13% later this year.

Should inflation rise to and remain at 10%, this would mean that the value of £100,000 after three years – in terms of what you can buy – would reduce to £75,131.

What can be done to combat inflation?

Rather than keeping money in cash, investing your money over the medium to long term can help to mitigate the effects of inflation.

For example, after adjusting for inflation, £100,000 invested in shares would have more than doubled in value since the mid-1990s, compared to the same amount having almost halved in value had it been kept as cash**.

Take action now to review any cash savings you have

If you have a cash ISA or other cash savings that are above and beyond the amount that you might need to immediately access, it’s important to get a professional review to consider whether investing some of the money may help to protect you against inflation or better reach your long-term savings goals.

A financial adviser can help you develop a financial plan to help you achieve your financial goals, including a suitable approach to help reduce the impact of inflation. Ensuring you hold the right balance of cash and stocks and shares for your needs and investing at a level of risk that you’re comfortable with is an important part of that conversation.

It’s important to remember that the value of your investment can go down as well as up and you may get back less than what you originally invested.

Next steps

Our handy flyer contains more information about the eroding effects of inflation and what you can do about it. If you don’t have a financial adviser, you can find one and find out more about the benefits of financial advice here.


*UK Inflation Rate (

**The Investment Associations 40-85% shares sector, December 1996 – June 2021. Annualised inflation over the period 2.18% and annualised return from the sector 5.67%.