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Inflation is like a hidden tax but it can be beaten

In the first 10 months of the year, inflation grew an average of 8.4% and households bore the costs of finding an additional £93 and £283 a month, depending on what and where they spent their money, according to Moneyfarm research.

For instance, households that spent most of their money on food and non-alcoholic drinks experienced a higher rate of inflation of 13.7% while those spending money on education only saw a 3.2% rise.

Inflation on food, housing, fuel, power and transport is affecting all consumers. However those who spend more on these expenses, such as large families and poorer households who don’t have good insulation in their homes, are the hardest hit.

Inflation is still on the rise. The latest October data shows that inflation currently stands at 11.1%. The cost of living is effectively increasing at its fastest rate in 40 years and the problem is that wages are not keeping up, so we must rely on the money we’re currently earning and saving.

Inflation impact on cash

Inflation is not the same for everyone because we don’t all spend money in the same way. But when it comes to our cash savings, we mostly suffer in a similar way. Inflation is the enemy of all households that save cash or hold money in traditional cash savings account. This is because the rising prices help to deteriorate the buying power of cash in the long term.

But there are still things households can do to protect their finances. One way to beat inflation is to change investment strategy to ensure that your savings have a fighting chance against inflation.

Money held in traditional savings accounts will only see marginal hikes in interest. At the time of writing a top easy access savings account was paying 2.85% in interest, while a top notice account was offering 3.2% and a top fixed rates account (where savings must lock their savings away for a period to benefit) was offering 4.65%.

While these rates are better than they were prior to the series of interest rate hikes we’ve seen recently, they are hardly inflation beating offerings.

How to beat a hidden tax

Inflation is like a hidden tax for everyone, but the good news is that if you act now and invest in stocks and shares, by wrapping it in an Individual Savings Account (ISA) you could beat inflation, protect your money from tax (hidden or otherwise) and see your investments grow thanks to compound interest.

At Moneyfarm we strive to raise awareness of important financial planning issues that could impact savings, like inflation. Inflation is not an enemy you should fight alone. We’re an online investment advisor but we’re also contactable by phone and are ready and willing to help.

It just takes a few minutes to get your savings goals back on track. We’ll ask you a series of questions to determine your knowledge, risk appetite and objectives. We’ll then take this information to build your investor profile and match you to the right portfolio created by our experts.

It’s a quick and simple process that could help to ensure that your money works harder for you right now.

Subscribe to Moneyfarm today to see how we can help you beat inflation.

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.