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Can I protect my money from inflation?

21 January 2022 in Outlook, Investing

Inflation looks set to continue its upward trajectory through the first half of 2022. As a result, we are seeing a growing gap between the interest rate on cash deposits and the rate of inflation, leading to a fall in the real value of cash over time – and a lot of investors are asking us how we can help to protect their money from inflation.

Most people will find it impossible to insulate their wealth completely from this drop in value. However, there are a few simple steps you can take to make sure you are doing all you can to make sure you protect your money from inflation.

Why are low interest rates and high inflation a threat to cash?

While interest rates have been going up lately, inflation has been rising at a much faster rate. Savings accounts are failing to pay much more than 3% per annum gross (net 1.80% for higher rate taxpayers and 1.65% for highest rate payers) for those willing to lock their money away for a minimum of 12 months, and much less for those wanting instant access to their money.

Meanwhile, inflation is at 9.4% (as at 10 August 2022). The difference between the high rates of inflation and the lower interest rates mean cash is devaluing in real terms every day.

And with inflation forecast to hit 13% by the end of the year, according to the Bank of England, protecting your money from inflation is becoming vital.

Five questions to ask yourself if you want to protect your money from inflation or if you are thinking about investing during inflation.

1) Is the amount you have in cash appropriate for your circumstances?

There is no ‘one-size-fits-all’ answer to this question, and it is very much a personal choice – some experts recommend three months’ expenditure, others up to a year’s worth. Plus any near-term capital expenses should certainly be retained in cash.

It is sensible for many people to keep a cash buffer, but since this will be at the mercy of inflation, some savers may opt to hold the bare minimum amount in cash to avoid incurring losses on the value of their money.

2) Should you consider investing some of your cash?

Many investors have found a diversified investment portfolio has outperformed cash in recent times. To illustrate this, below is a graph of the real return of cash over the last ten years at the Bank of England base rate, versus the real return of three of Canaccord Genuity Wealth Management’s model investment portfolios [2].

Based on a starting value of £1,000 in October 2011, ten years later the cash would only be worth £869 in real terms – a loss of 13%, thanks to a combination of high inflation and low interest rates. Meanwhile, over the same period, the model investment portfolios [2] returned up to 70% when taking inflation into account

Of course, past performance does not determine future performance. But as inflation could remain higher than interest rates for some time or even rise further, it makes sense to seek professional advice to see whether investing some of your cash in a diversified investment portfolio could benefit you.

3) Have you maximised your pension savings in recent years?

Notwithstanding the constant tinkering with legislation by successive governments, pensions are still a very tax-efficient investment for the majority of people, with tax relief on contributions, as well as tax-free growth within the fund.

4) Have you made use of your ISA allowance this year and those of your family (assuming you’re feeling generous)?

Everyone aged 18 and over can invest £20,000 per annum into an ISA; those under 18 can invest £9,000 each year. ISAs grow tax free, whether invested in cash or other asset classes like stocks and shares, and the long-term effects of this tax-free growth can be significant.

5) Are you making the most of your income allowances?

Often, we find people squander the opportunity to use a spouse or partner’s lower income tax rate, or even their Personal Savings Allowance (currently £1,000 for 2021/22), by holding investments or cash balances in the higher earner’s name. This could mean, for example, paying tax on interest at 45% when the spouse would pay just 20%, or even no tax at all. There is no limit on the amount of money that can be transferred between spouses, so you might want to consider whether transferring holdings to or from your partner would benefit your family.

Few savers will be untouched by inflation in the near future. But by asking yourself the questions above, you can mitigate the effect of inflation by making sure your money is working as hard as possible to earn inflation-beating returns.

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Please remember, if you hold an account with Adam & Company, you can check your portfolio value at any time, through Wealth Online or by getting in touch with your Investment Manager. 

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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

This is not a recommendation to invest or disinvest in any of the companies, themes or sectors mentioned. They are included for illustrative purposes only.

[1] At December 2021, savings accounts: 0.71% easy access or up to 1.82% fixed (

[2] Based on historic CGWM data

Photo of Colin Mann

Colin Mann

Senior Wealth Adviser

Colin has been advising high-net-worth individuals, their families and business interests in areas such as self-invested pensions, tax-efficient investments, trusts and IHT planning for over 34 years. He has taken care of some families’ affairs for three generations. Colin is a Chartered Fellow of the CISI.

+44 (0) 131 380 9524

Investment involves risk and you may not get back what you invest. It’s not suitable for everyone.

Investment involves risk and is not suitable for everyone.