Inflation versus interest: protecting your savings

ISA savingsWith inflation rising and interest rates staying stagnant, Wesleyan explains how you can still ‘power up your pounds’ with its range of stocks and shares ISAs.

You’ve worked hard and conscientiously, put a little away every month, gradually building up your nest egg. But now, through no fault of your own, you face the prospect of your savings shrinking as record low interest rates fail to keep up with runaway inflation.

At the time of writing, inflation – which measures the changing cost of goods or services – stands at 3.2%. While the Bank of England base rate is just 0.1%.

This means that money stashed in low-interest savings accounts is failing to keep up with the rate of inflation. Its ‘spending power’, the amount of goods you can buy with that money, is decreasing over time.

There is widespread speculation that interest rates will increase in the coming months. Forecasters expect it will hit 1% in the next year or so. But with the rate still lower than inflation, it means that money left in the bank is actually losing its value over time.

Powering up your pounds

To overcome this problem, dentists need to make sure their savings are growing, at least at the same rate as – and preferably faster than – prices are rising.

Investing can help you beat low interest rates, outperform inflation and grow your wealth. Of course, investing always comes with an element of risk. But there are ways to minimise that too.

Dentists don’t need a huge amount of money to start investing. But you should commit that cash for at least five years, and typically much longer, to reap the full benefits. That’s because the stock market can experience regular short-term ups and downs. But it tends to grow in the long term.

Investing for a longer time period gives your investment time to recover from any instability.

We’d always suggest building up an easy-to-access rainy day fund before you start investing for the future.

A common rule of thumb is to have three months net household income in the bank, just in case you need ready money for any unforeseen expenses.

Going for goals

It’s important to have an investment strategy that takes in your personal circumstances. This should include things like your current financial position and any other financial commitments.

Think about what you are investing for and for how long. You may have a mix of shorter-term investment goals, like saving for a house deposit, and longer-term targets, like funding your retirement.

It’s also important to consider how much risk you are willing to take. This will help inform what you invest in.

Assets that you can invest in include stocks and shares in businesses, property and corporate or government bonds. Each comes with its own level of risk and reward, which can change over time.

You can reduce that risk by spreading your investment across different assets. This offers a degree of protection if one of them happens to perform poorly. Investing in funds is a good way of doing this.

Risk and reward

A fund will generally invest in a range of different assets. Every fund has a risk rating, usually between one and 10. So you can pick a fund that matches your appetite for risk.

One option is to open a stocks and shares ISA, which invests in a mix of assets, with the added benefit that any profits earned are exempt from capital gains tax or income tax.

Wesleyan’s stocks and shares ISA, for example, lets dentists invest in our With Profits ISA Fund. This aims to generate returns over a period of five to 10 years, spreading risk by investing in UK and international shares, government and corporate debt, property, cash and other financial investments.

And the With Profits ISA Fund works to manage the ups and downs in market performance through a process called smoothing. It holds back some profits in years when the market performs well, to subsidise returns in years when the market falls.

Ask for advice

Just as throughout your dental career, you will continue to update and further your knowledge. It’s important to do the same on your investing journey by keeping an eye on the performance and suitability of your investments.

Over time, your priorities change. So review your investment portfolio at regular intervals to make sure it’s still achieving what you want it to.

A specialist professional adviser is a great help to ensure that your investments are optimised. Wesleyan has been working with dentists for generations to help them achieve their investing goals. We understand your profession and can offer advice tailored to your career and lifestyle, helping you plan for a financially comfortable future.

For more information or help with investing, visit or call 0800 316 3784.

Note: There is no such thing as a totally risk-free investment, and it’s important to remember that the value of your investments can go down as well as up. Especially when invested in stock markets, which are volatile. Ultimately, you may even get back less than you put in.

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