The recent rise in inflation to 2.4% doesn’t just add to the squeeze on household incomes it also reduces the spending power of money held in bank savings.
Many individuals are reluctant to invest in the financial markets for fear of losing money yet these same people often have thousands in deposit accounts as they see this as safe or “risk free”.
While it is appropriate to have funds set aside for the short term to cover planned expenses or to act as an emergency reserve for unexpected costs there is a high risk of losing value over the long term.
With the Consumer Prices Index (CPI) of inflation currently at 2.4% per annum and the Bank of England base rate at 0.75% money held in bank deposits is losing 1.65% per annum in real terms.
Investments in financial markets, especially equities (shares) or equity funds, help protect against the long term erosion of spending power as the price of shares & funds tends to rise with inflation.