Do you understand the true impact of inflation on your savings and investments?

How much do you think £1,000 saved in a bank account 10 years ago would be worth today in real terms – assuming you earned interest at the Bank of England base rate?

In August 2021 we asked members of the public that question - and the answers were surprising. Read on to find out more.

What has been the impact of inflation on your cash savings?

Despite inflation outstripping interest rates for some time now, our 2021 survey revealed a significant inflation knowledge gap. We partnered with YouGov to survey 1,006 high-net worth individuals[1] to find out if consumers truly understood the impact of inflation on their cash savings – and the results were surprising.

When we asked how much they thought £1,000 cash would be worth in August 2021 after 10 years in the bank, taking into account both interest rates and inflation, the average (mean) answer was £1,404 – a gain of more than 40%.

In actual fact, the true figure was vastly lower at £877 – a loss of more than 12% - a whopping £527 less than the average guess!

As a whole, our survey respondents did not realise cash would generate a loss when taking into account low interest rates and higher inflation. This points to a worrying lack of awareness about the true effects of high inflation among consumers.

Are you worried about inflation?

Our research also revealed people were worried about inflation - and rightly so given the potential impact on their wealth - with 44% of respondents saying they were concerned about the impact of inflation on their savings.

25% of respondents said inflation posed the biggest threat to their wealth over the next five years; with men more likely to think inflation was the biggest threat to their wealth (32%) than women (19%).

This compares to 31% of respondents who thought market volatility was the biggest threat to their wealth.

We know inflation is a real threat to cash savings, but is there anything you can do to minimise the impact of inflation on your savings and investments?

Should you be investing during inflation?

While past performance is no guarantee of future performance, if you are holding cash and are worried about inflation, investing in a diversified equity portfolio might be a way to minimise its impact on your wealth. However, there are many factors to consider so it is best to seek advice from a qualified investment professional before making any investment decisions.

Find this useful? Read more about inflation: 

• Protect your wealth from inflation video
• Do I need to protect my savings against inflation?
• What is the right amount to keep in savings?

If you would like to learn more about how we can help protect your wealth from inflation with confidence, get in touch to speak to a professional wealth adviser.

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

 [1] All figures, unless otherwise stated, are from YouGov PLC.  Total sample size was 1006 high-net worth individuals. Fieldwork was undertaken between 6 - 25 August 2021.  The survey was carried out online.