This could include income drawdown plans or with-profits annuities, which give some exposure to stock market-linked returns. For those who pay tax on their interest it is almost impossible to outrun inflation. But these annuities pay a far lower starting income. 3:34PM BST 15 Aug 2011. As these are tax-free products, this equates to 8.83 per cent for higher-rate taxpayers and 6.63 per cent for basic-rate taxpayers. Costs – particularly on food and fuel – have been rising in recent months in response to the fall in the value of sterling since Britain’s vote to leave the European Union in June 2016. By offsetting your savings against your debt, you effectively end up with an interest-free savings rate at whatever rate you are paying on your mortgage. If you want to protect your savings against inflation over the long term, the equities have in the past been a good bet.
There are ways to mitigate the impact of inflation Some mortgages are fully flexible, allowing you to make overpayments and get them back freely, while others do not allow you to take overpayments back, or will charge you if you make too many.
Once you have exhausted your tax-free savings options, there is one more option that can help you to outrun inflation, if you have a home loan. Economic experts do not expect inflation to fall significantly this year.
Leeds building society offers a similar two-year bond and Isa. 0.
Even if inflation falls to 3 per cent, £100,000 in the bank will have lost a quarter of its value a decade later. With inflation running far ahead of the Bank of England target, most savers are finding that their money is worth less by the day. And if inflation is not brought under control quickly this could force the Bank of England to increase interest rates pushing mortgage rates still higher. At current prices it would take a 65-year-old man 14 years for the inflation-linked annuity to overtake the income provided by a standard, "level" annuity. And this doesn't look like just a temporary blip. "Annuity rates have been rising over the past year, but you have to ask yourself why," says Billy Burrows of William Burrows Annuities. "Those with a large enough pension pot should look at spreading their risk and investing in a range of different options," says Burrows. Oliver Jones. The best rates are available to those who are willing to put their money away for five years, and include Northern Rock's fixed-rate Isa paying 4.26pc over five years, just below June's CPI figure. Currently there are a number of instant access accounts paying in excess of 6 per cent . Inflation can be particularly damaging for pensioners, who generally have fixed incomes. They aim to deliver a dividend stream up to 10 per cent higher than the FTSE average while also striving for capital growth.
For those looking to minimise volatility, collective funds are the best bet. A spokesman for the Investment Management Association says: "This remains true today, whatever one's views on the short term prospects for the market. Those approaching retirement who worry that inflation will be a big problem over the next decade may want to consider an inflation-linked annuity, so your pension keeps pace with prices. 4th April, 2017 ; Money & Finance; The pressure on household finances is starting to increase. Written by: Your Money. The only other hope is an increased state pension. If you want total security for your savings and have exhausted all other options and used your tax-free allowance, the best you can do is to find the best paying home for your money.
This is to make overpayments on your mortgage. Once you have considered how to get an inflation-beating return, consider your investments’ tax efficiency. For many people this will be better than a top-paying savings account. Some of the biggest names in fund management work in this sector, and over the past five years the best-performing funds have almost doubled investors' money, according to Morningstar, the fund analyst. A well-diversified portfolio of equity funds remains a good hedge against inflation." Based on June's inflation figures, a basic rate taxpayer would require an account paying 5.63pc to beat the lower level of inflation (CPI), while a 40pc taxpayer would require an account paying 7.5pc to beat the same measure.