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How to protect your savings and pension from UK inflation

<span>Photograph: Piotr Adamowicz/Alamy</span>
Photograph: Piotr Adamowicz/Alamy

Interest rates went up again this week, and many savers will see their rates boosted as a result, but rising inflation – currently 9.4% and set to go higher – is eating away at the value of people’s nest-egg cash.

As central banks around the world raise interest rates to defeat inflation, fears are growing of a full-blown recession. 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 nest-egg money and pension from inflation.

Stick it all in gold

They say gold is the traditional haven against inflation – but that has not been the case this time round. Since March it has fallen from more than $2,000 (£1,655) an ounce to about $1,750, and is back to where it was about two years ago. It has done better in sterling terms because the dollar has risen so much against the pound.

If you do want to speculate in gold, you don’t have to buy krugerrands (South African gold coins). You can invest small sums via “exchange traded funds” – for example, Invesco Physical Gold, which holds the shiny stuff in the vaults of JP Morgan bank in London.

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

Shove it under the mattress

This is the daftest thing you can do with your money. First off, if your house burns down or the money is stolen, a home insurance policy typically covers only £500 or £1,000.

Second, inflation means cash is plummeting in value all the time.

Put it all in a high-interest savings account

That would only make sense if such a thing existed. On Thursday this week, the best rate 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 high street banks pay paltry sums on their cash Isa accounts.

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

Buy the shares everyone else has sold

Possibly. But only ever speculate this way if you can afford to lose the lot. The US tech companies have been the most “beaten-up” shares in recent months. PayPal has plummeted from $285 a share a year ago to about $98 this week. Meta (Facebook) is down 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 shares if you can’t afford to lose it, while many high street banks pay paltry sums on their cash Isa accounts.
Photograph: Andrew Paterson/Alamy

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

Find a boring investment trust

Some investment trusts have records stretching back more than a century, holding a spread of shares in relatively low-risk companies with a good record of regular dividends, even during recessions. Boring is probably sensible in these markets.

Dzmitry Lipski, the head of fund research at the website Interactive Investor, says: “A good one-stop global investing shop is F&C Investment Trust, which hopes to raise its dividend again this year for what would be the 52nd consecutive year. With the trust expecting inflation to stay elevated, companies that can keep raising dividends can provide an additional level of comfort – and its 154-year track record means it’s seen plenty of ups and downs.”

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

Read our guide to investing online at

Batten down your pension

Even the humblest employee with a small workplace pension is entitled to switch their money around within their pension. But take care.

A kneejerk reaction to sell out and go into cash is not a good idea

Hargreaves Lansdown’s Helen Morrissey

“A kneejerk reaction to sell out and go into cash is not a good idea,” says Helen Morrissey, a pensions expert at the investment firm Hargreaves Lansdown. She adds that pensions are a long-term investment, and if you hold too much in cash, your pension is likely to be eroded.

Despite some hefty falls in share prices on Wall Street and across Europe, the big pension funds have not performed that badly over the past year. The value of the default fund (2040 retirement date) of Nest (National Employment Savings Trust), which holds the pension savings of millions of newly enrolled UK workers, has actually risen over the past year, although by only a few per cent.

Go with the clever money

Who was warning in May last year about inflation, overexuberance in financial markets and severe cryptocurrency risks? Warren Buffett, the 91-year-old legendary US investor. Since then, inflation has soared, the Nasdaq index of mostly tech stocks is down by about a fifth, and crypto has crashed.

Buffett says be “fearful when others are greedy, and greedy when others are fearful”.

So what’s he buying now? Oil companies. He has plunged $27bn into Occidental Petroleum and Chevron shares alone. It has paid off: Occidental shares are up about 100% this year – not that anyone concerned about the climate emergency is likely to follow suit.

Warren Buffett
The veteran investor Warren Buffett has been buying up shares in oil companies. Photograph: Nati Harnik/AP

Buffett is also a big investor in Apple, whose share price is down almost 10% this year. He continued to buy more Apple as its share price slipped.

Britain’s answer to Buffett, Terry Smith, said in his letter to investors in July that he “is not optimistic” about the threat from continued increases in interest rates.

He says investors should remain focused on companies with consistently high profit margins. He adds that bonds are “certainly not the place to be in these conditions”, while real estate and property 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 conglomerate, Berkshire Hathaway. Smith’s fund business is called Fundsmith.

Do nothing and sit it out

If you are under 50, that’s not a bad strategy. When markets fall, comfort yourself with the idea that your monthly pension contributions are buying more shares (for the long term) than before.