Inflation slows but still erodes

Sam Jackson

June 16, 2010

November 13, 2018

Inflation slows but still erodes

There's some good news for all of us today on the cost of living front. The price of food, non-alcoholic drinks, alcohol and tobacco has fallen slightly in the past month, according to the latest figures for the consumer prices index (CPI) which have just been announced.

Some of the main contributors to the slight price fall are meat (particularly pork products) fruit, vegetables, beer and wine (particularly new world wine). The cost of new cars and passenger road transport has also marginally decreased, and while petrol costs continue to rise, they aren't increasing as sharply as this time last year.

Sadly the same can't be said of rent and housing costs, which are showing stronger growth, and electricity costs remain high with no sign of a back down. Overall though, the CPI has retreated from the 17-month high it reached in April and now stands at an annual rate of 3.4%. At the same time, the broader Retail Prices Index (RPI) which includes mortgage interest payments has also fallen to an annual 5.1%, down from April's 19-year high of 5.3%.

So all in all, inflation has eased during May, which is good news for everyone. But you will still have your work cut out when it comes to making sure it doesn't erode the real value of your savings. In fact, you won't find a standard account that comes anywhere near the 5% mark. To achieve this kind of return you're going to have to lock your money away for a while and there really is just one option – with National Savings & Investments (NS&I).

NS&I is the market leader in inflation beating accounts. Its Index Linked Savings Account guarantees to beat the annual RPI by 1% if you keep your money there for a set term of either three or five years. You can invest anything from £100 to £15,000, returns are tax free and if you withdraw your money after more than a year you will still receive some interest, although not at the RPI plus 1% rate.

No other account comes close to this guaranteed rate of tax free return just now. The next best seems to be Nottingham Building Society's Branch Fixed Rate Regular Saver which is offering an AER of 5.05%, but remember this is taxable and while you can invest anything from £10 to £100 a month, the maximum overall investment is just £1,300.

Your only other alternative when it comes to beating inflation is to consider a structured investment product like a three year bond. For example, Investec is currently offering a product called the 100 Deposit Plan which has two options. Option 1 guarantees the return of your initial capital investment after three years, plus a return of 15%, but only if the FTSE rises over the period. Option 2 guarantees the return of your capital after three years, plus interest of 3%, in addition to a return of 12 % if the FTSE rises over the period. The minimum investment in both of these is £1,500.

But these are considered much higher risk options than savings accounts and you really should seek financial advice to make sure you understand the risks you are taking.

Statistics from Moneyfacts

Sam Jackson

Money Dashboard

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