Investors must be inventive to combat march of inflation

Living costs are continuing to rise, tightening the squeeze on households. The Consumer Price Index measure of inflation rose to 2.7 per cent in April '“ the highest level in nearly four years.

According to calculations by M&G Investments, £5,000 saved in an average instant access savings account could lose £127.50 in real terms after the effects of inflation over the next year.

So while it’s important to keep a rainy-day savings buffer you can access quickly if you need to, perhaps it’s time to consider other places to put your cash. Here are some ideas.

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Get a new current account

Many current accounts pay higher interest rates than you might get from a standard savings account. You could also get paid to pay your bills. For example, Santander’s 123 current account pays monthly cashback on selected household bills, while with TSB’s Classic Plus account, you can earn £5 cashback every month for having two direct debits.

People could be about £92 per year better off by switching to a more suitable deal, according to a recent report from the Competition and Markets Authority.

Consider the stock market

Rachel Springall, a finance expert at, says: “Growth potential may well persuade some to consider this option, particularly as the average stocks and shares Isa has returned growth of 16.5 per cent over the past year. But it’s worth remembering that past performance is no guarantee of the future.

“In comparison, the average return on cash Isas over the past year was just 0.97 per cent, which means the difference in return on a £10,000 investment is approximately £1,553.”

Springall suggests customers concerned about the risks, or confused by the thousands of funds on offer, should consider seeking advice.

Property investment

While recent tax changes may have affected landlords’ profits, property investment could still be an attractive option.

Research from Rightmove in January suggested locations in Lancashire and Merseyside could be particularly good for landlords. It found landlords could potentially achieve yields of more than 7 per cent (rental income as a proportion of property value) in these areas if they buy the right property. Swansea and Glasgow also offered particularly attractive yields, the research found.

Peer-to-peer lending

Peer-to-peer lenders act like middlemen, matching people who have cash to invest with those who want to borrow money.

The potential returns can be much higher than you would get with a standard savings account. But there are risks to consider as savers’ money is not protected by the UK’s Financial Services Compensation Scheme (FSCS) in the same way as with savings held in a bank or building society.

Top up your workplace pension

With a workplace pension, savers get “free” contributions from their employer and through tax relief.

Specialist Isas

Some Isas help savers achieve particular goals, such as the Lifetime Isa, for retirement, and the Help to Buy Isa, for first-time buyers. Both of these offer a cash bonus.