Inflation-proof your precious savings

The latest inflation figures might show rising prices are easing - but it’s still very hard to get any kind of decent return on your savings. Out of almost 1,500 standard savings accounts on the market, only about 200 negate the effects of inflation and tax for basic-rate taxpayers. Most of those are ISAs.

For higher-rate payers, the outlook is worse. The impact of inflation on savings means that £10,000 invested five years ago, allowing for average interest and tax at 20 per cent, would have the spending power of just £9,209 today.

“UK savers are not fat cats moaning because their huge investments aren’t making enough; they are predominantly people who have saved all their lives to help supplement incomes when they retire. It is sad that this frugality now offers little to no reward,” said Sylvia Waycott at Moneyfacts.

If you’ve got, say, £10,000 savings looking for a home, do your homework and you can secure a return on your money.

Cash: Halifax’s five-year fixed ISA will pay out 4.25 per cent. You can’t access the money for that period, though, so anyone looking for instant access should go to the Cheshire Building Society, whose Direct Cash ISA issue 3 pays interest at 3.35 per cent. If you’ve not yet used up your cash ISA allowance, do so: the interest is tax-free. Although the annual limit is £5,640, married couples can double that.

After that, the Post Office is offering 3.17 per cent with its Online Saver Issue 5. “If you are prepared to tie your money up, the State Bank of India offers a five-year bond with a fixed rate of 4.5 per cent,” adds Mike Pendergast, IFA at Zen Financial Services. “Or you could look at Premium Bonds which offer no fixed return but the potential for big prizes with cash back if you don’t win.”

Stocks and shares: “Longer term investors should shelter £10,000 from tax using a stocks and shares ISA,” proposes Danny Cox, of Hargreaves Lansdown. “My favourite core fund is Invesco Perpetual High Income: equity income funds such as these invest in profitable companies which are well run and have a good expectation of paying dividends. These can either be drawn as income or reinvested to boost the growth.”

A list of other IFAs offering advice in your area can be found at unbiased.co.uk