Super-Charge Your Savings. 3 Inflation Busting Tips.

Most of you are losing money right now in real terms because inflation for January has hit nearly double the target for the UK. But we can show you how to get back in the black.

The Government’s target for inflation is 2 per cent, so having the Retail Prices Index (RPI) hit 3.7 per cent, and the Consumer Prices Index (CPI) hit 3.5 per cent, is bad news for savers. This is higher than the rate you can get on most savings accounts in the UK, so your savings are now growing at a slower rate than prices are rising – falling in real terms.

So what can you do to get yourself back in the black? You need to get a rate that beats inflation. Here are our tips to do just that:

1. Avoid the tax

Yes, there are still some accounts out there paying a better rate than inflation, but you need to look for it – and you need to take into account any tax you have to pay. So the best place to start is with individual savings accounts (Isas). These are tax free, so the rate on offer is what you end up with in your pocket.

The Halifax Fixed Rate Isa is paying 4.25 per cent on £500 or more providing you can keep your money tied up for four years.

Anyone over 50 can put up to £5,100 into an Isa this year, so they can benefit even more. The rest of us can put £3,600 into an Isa this year, but get the extra allowance after April 6.

1. Beat the inflation rate after tax

This is tough, but it can be done. If you are a basic rate taxpayer, you need to get 4.63 per cent on your savings before tax to keep pace with inflation, according to data from Defaqto. You can beat that, with the 4.75 per cent on the Nationwide e-bond, providing you deposit at least £1 and can keep that money tied up for five years. If you have £50,000 to deposit, you can get that rate up to 5 per cent.

Looking outside the traditional savings arena can give you even more. There are two current accounts which will beat inflation for you – the Alliance & Leicester Premier Direct Account and the Santander’s Preferred In-Credit Rate Account. Both pay 6 per cent AER, which is fixed for a year.

You must pay at least £500 a month into the former, and £1,000 a month into the latter to comply with the terms. You will only get the 6 per cent on a maximum of £2,500 in the account, so do not leave any more than that in there. Once you have deposited the required amount for the month, make sure you withdraw it.

Since the rate is only fixed for a year, you need to rethink your strategy after it ends by checking what deals are available.

Unfortunately, if you are a higher rate taxpayer, you can only beat inflation at the CPI rate of 3.5 per cent – you would need 5.83 per cent as a minimum to beat this inflation rate, which is possible with both Alliance & Leicester and Santander, but at the RPI rate, you would need 6.17 per cent, according to stats from Defaqto.

The only place you can get that is on a regular savings account linked to HSBC’s new Advance account, which will pay you 8 per cent. But you have to pay for this account, so you would struggle to get the value from it.

1. Be happy – your debt is worth less than it was, but reduce the cost of it.

Rising inflation is the friend of those in debt. If you have borrowed money then rising inflation means that the value of that money is less than it was when you borrowed it.

Does this have an impact in real terms? Yes it can. Apart from the above, inflation is the measure by which wages are increased – so the higher the level of inflation, the higher any pay rise will be, and the more you will have available to pay off your debt. In the current circumstances, a pay rise may not be on the cards for some people, but the premise still holds.

If you would rather not wait, then move your debt to a lower rate than you are currently paying if you can. Get a 0 per cent credit card, (Typical APR variable) or a lower rate loan.