Cash, investments and protecting your savings


by Lelan Spence.

The Consumer Price Index (CPI) is one of the measures used by the Office for National Statistics (ONS) to determine the level of inflation – the increase in the cost of living as the price of goods and services rise – in the UK. Figure 1 below shows that over the last twenty years CPI, and therefore the general price of goods and services, has risen by 50% which is an average of approximately 2% per annum.

What does this mean for your savings?

If inflation continues at 2% per year, this will mean that in five years’ time £10,000 of saving would have the same purchasing power that £9,057 would have today, and in ten years’ time would have the purchasing power of £8,203 today.

Cash, investments and protecting your savings

Figure 1 – Consumer Price Index over the last twenty years

In the past, the interest received by UK bank account holders helped counter the effects of inflation but throughout the years since the financial crisis in 2008 – and more recently the Covid-19 pandemic – the average interest offered by banks on deposit and fixed-term accounts has seen record lows which in turn means the protection your savings have from inflation is at a record low. Generally, we would expect interest rates on cash to be lower than inflation.

What can you do to protect your savings?

You must of course hold sufficient cash to protect against financial emergencies and enjoy on short-term spends.

Once you have set aside such cash needs then you can consider other options, such as the examples below.

Utilise your pensions and ISA allowances to invest your long-term savings tax efficiently and to give the opportunity to achieve a rate of return equal to or higher than inflation so that the purchasing power of your money remains constant or increases.

You can contribute up to £20,000.00 per tax year into a Stocks & Shares ISAs with all investment growth and withdrawals free of any tax.

You can receive tax relief at your highest marginal rate on pension contributions up to the lesser of your annual relevant earnings or £40,000 per tax year. Figure 2 gives an example of the different levels of tax relief you can receive depending on your income tax bracket. If you are a basic rate taxpayer, for every £80.00 you pay into your pension, the government will contribute an additional £20.00 in tax relief. If you are a higher rate taxpayer, you could claim back an extra £20.00 in tax relief.

to invest £100 in a pension

Figure 2 – Illustration of tax relief on pension contributions (Source:

How we can help.

Here at SN Financial, we develop – through open discussion of a client’s complete financial situation – the most suitable investment strategy to help achieve long-term capital growth in line with their individual attitude to risk profile. Figure 3 compares the performance of our range of Centralised Investment Proposition portfolios versus CPI (inflation) over the last five years.

As you can see all five portfolios have achieved a higher percentage return than CPI over this period which means that your savings would have beaten inflation and seen the overall purchasing power of your investments increase.

Cash, investments and protecting your savings

Figure 3 – Range of Centralised Investment Proposition portfolios versus CPI (inflation) over the last five years.

As a final thought, you can see from the chart above, by investing, the capital value of your investments will fall as some point. However, by not investing and therefore avoiding investment risk you also remove the chance of your capital rising as well as falling but are guaranteeing that the purchasing power of your cash savings will be eroded by inflation over time.

For further information contact Wealth Management Executive Lelan Spence

This article is based upon statistical information provided by SN Financial Services Limited via FE Analytics on 28/02/2020.

The value of investments can fall as well as rise. Past performance is no guarantee of future performance.

More News