If you have any savings tucked away, then you may want to take the time to understand what the effects of the pandemic on the UK (and global) economy will have.
Firstly it’s important to fully comprehend the impact inflation and interest rates will have on your savings. Generally speaking, inflation measures how prices increase from one year to the next, the more the public spends, the more businesses will increase their prices, and this increase in prices drives up inflation. As we are now in a second lock down, it is easy to see the result of less spending, as the rate of inflation currently lies at 0.5% which is well below the Bank of England’s target of 2%.
A low rate of inflation generally leads to low interest rates. This acts to make it cheaper to borrow and right now interest rates are at a record low with the Bank of England base rate of interest being set at just 0.1%. The act of borrowing money which is then pumped back into the economy through spending can help to boost the economy, however, the flip side of the coin is that anyone with savings will be receiving less interest on their savings.
If the rate of inflation is higher than the rate of your return on interest then this will start to erode away at your savings. Baring in mind the current rate of inflation is 0.5%, you need to ascertain whether the rate of interest on your savings account is actually matching that, or your cash will be losing value. The interest you gain on your savings must be beating inflation in order to give you good returns.
If you are intending to have your savings for 5 years or more, you may want to consider investing using platforms such as Hargreaves Lansdown (check out our review) in order to get better returns, but as always with investing, you are not guaranteed to get back your original investment.