How to protect your savings and pension from inflation in the UK | Consumer Affairs

lInterest rates have risen again this week, and many savers will see their interest rates rise as a result, but rising inflation – currently 9.4% and set to rise even higher – is eating away at people’s nest egg money.

As central banks around the world raise interest rates to beat inflation, fears of a full-blown recession are growing. So what can you do now to protect yourself from a potential hammer blow to your finances?

Here we look at some of the options for protecting your savings and retirement from inflation.

Put it all in gold

They say gold is the traditional refuge from inflation, but that has not been the case this time. Since March, it has fallen from over $2,000 (£1,655) an ounce to about $1,750, and is back to where it was about two years ago. It has outperformed in sterling as the dollar has risen so strongly against the pound.

If you do want to speculate in gold, you don’t need to buy krugerrands (South African gold coins). You can invest small amounts through exchange traded funds, for example Invesco Physical Gold, which keeps the shiny stuff in the vaults of the JP Morgan bank in London.

Stack of gold bars
Gold has fallen from over $2,000 an ounce in March to about $1,750. Photo: ImageBROKER/Alamy

Slide it under the mattress

This is the craziest thing you can do with your money. First, if your house burns down or the money is stolen, home insurance will typically cover just £500 or £1,000.

Second, inflation means that cash is constantly depreciating in value.

Put everything in a high-interest savings account

That would only make sense if such a thing existed. This week Thursday, the best yield on a one-year fixed rate bond was 2.85% from OakNorth Bank. Even on a five-year bond, the best you could get was 3.4%. Meanwhile, many large street banks pay paltry amounts into their cash Isa accounts.

That said, aim to keep a rainy day deposit amount equal to three to four months of your spending. That’s not easy, though, as so many families in the UK are faced with what consumer champion Martin Lewis said was a “national financial disaster”.

Buy the stocks everyone has sold

Possibly. But only speculate this way if you can afford to lose the lottery. US tech companies have been the most “beaten up” stocks in recent months. PayPal has plummeted from $285 a share a year ago to about $98 this week. Meta (Facebook) has fallen from $370 to about $170, while Netflix has dropped from $600 to about $225 this year alone.

Scrabble board with the words cash, shares and Isa
Never invest money in stocks if you can’t afford to lose it, while many major banks pay paltry amounts into their Isa cash accounts.
Photo: Andrew Paterson/Alamy

But remember the old adage in the stock market: “Don’t catch a falling knife.” Just because a stock fell by 50% in the past year doesn’t mean it can’t fall another 50% in the coming year.

Find a boring investment trust

Some mutual funds have histories dating back more than a century, diversifying stocks into relatively low-risk companies with a good track record of regular dividends, even during recessions. Boredom is probably wise in these markets.

Dzmitry Lipski, head of fund research at the website Interactive Investor, said: “A good one-stop global investment store is F&C Investment Trust, which hopes to increase its dividend for the 52nd consecutive year this year. With confidence that inflation will remain high, companies that can continue to raise dividends can offer an extra level of comfort – and its 154 year track record means it has seen plenty of ups and downs.

Interactive Investor also likes Capital Gearing Trust and Personal Assets Trust.

Read our guide to online investing at

Secure your pension

Even the humblest employee with a small company pension has the right to change his money within his pension. But be careful.

“It’s not a good idea to sell on a squat and raise cash,” said Helen Morrissey, a pension expert at the investment firm Hargreaves Lansdown. She adds that pensions are a long-term investment, and holding too much cash will likely erode your pension.

Despite sharp falls on Wall Street and across Europe, the major pension funds have not performed so badly over the past year. The value of Nest’s (National Employment Savings Trust) default fund (retirement date 2040), which holds the pension savings of millions of newly enrolled British employees, has actually risen over the past year, albeit by only a few percent.

Go with the smart money

Who warned of inflation, financial market exuberance and serious cryptocurrency risks last May? Warren Buffett, the 91-year-old legendary American investor. Since then, inflation has soared, the Nasdaq index of mostly technical stocks has fallen by about a fifth and crypto has crashed.

Buffett says you should be “fearful when others are greedy and greedy when others are afraid”.

So what is he buying now? Oil companies. He has invested $27 billion in Occidental Petroleum and Chevron stocks alone. It paid off: Occidental’s stock is up about 100% this year — not that anyone concerned about the climate emergency is likely to follow suit.

Warren Buffett
Veteran investor Warren Buffett has bought shares in oil companies. Photo: Nati Harnik/AP

Buffett is also a major investor in Apple, whose stock price has fallen nearly 10% this year. He continued to buy more Apple as the share price fell.

Britain’s response to Buffett, Terry Smith, said in his letter to investors in July that he is “not optimistic” about the threat of continued interest rate hikes.

He says investors should continue to focus on companies with consistently high profit margins. He adds that bonds are “definitely not the place to be in these circumstances,” while real estate and real estate are “a notoriously local market with poor liquidity and high frictional trading costs.”

If you like the sound of Buffett, you can buy shares in his Berkshire Hathaway conglomerate. Smith’s fund company is called Fundsmith.

Do nothing and sit out

If you’re under 50, that’s not a bad strategy. When the markets fall, take comfort in the fact that your monthly retirement contributions are buying more stocks (for the long term) than before.

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