Top ten inflation busters

The headline UK inflation figure is finally back to the Bank of England’s 2% target. But the message from the central bank is that while the inflation beast might have be tamed, the threat has not been destroyed. Here we explain how you can try to inflation-proof your money.

The cost of living has eased significantly since its autumn 2022 peak of 11.1%. Indeed only last year it was at 8% compared to todays figure of 2%. That doesn’t mean that prices are falling, but that they are not rising as quickly as they once were.

In some areas, prices are still very high and there is no guarantee that inflation will stay at 2% for long. Below, we explain how to limit the damage to your savings and how inflation-busting investments can help, should inflation head upwards again.

This article covers:

• What is inflation?
• What investments do well during inflation?
• Should I get a fixed-rate mortgage?
• How can I get the most from rewards schemes?
• How can I cut my grocery bill?

Work out how to calculate inflation to plan for your future

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What is inflation?

Inflation is the measure of how much goods and services are going up by over time. When prices are rising, it means your money can buy less now than it could before.

A popular way of explaining the impact of inflation is with a Cadbury’s Freddo bar. In 1999, this small frog-shaped chocolate bar cost 10p, but today it would set you back 25p. If you’d had £10 in 1999, you could have bought 100 Freddo bars but today that same £10 would buy just 40 Freddos.

Better for your waistline, bad for your wallet!

If you want to understand more about how inflation is measured, why it rising and what that means for your money, check out our article on CPI vs RPI inflation.

1. Inflation-proof your savings

High inflation and cash savings do not generally work well together. When inflation is rising, your savings lose value if the rate of interest that you are earning on your money is lower and vice versa.

Have you checked out the top interest rates on savings accounts at the moment?

While you can find accounts paying over 5% now, there are many accounts paying less than the current rate of inflation, so you need to be vigilant. One of the downsides of earnings more interest on your savings is that, unless your money is protected in a tax-efficient Isa, it will draw the attention of the taxman.

Will you pay tax on your savings this year?

By shopping around to take advantage of the top rates available, you can give your savings their best chance to grow – rather than shrink – over time.

Once you have your emergency savings pot, you could consider locking up any leftovers for a fixed period as these accounts tend to pay a higher rate of interest. Just make sure that you won’t need this money before the end of the period or you could be hit with a penalty if you’re able to get access at all.

It could make sense to use extra savings to pay off a loan or mortgage instead, if the interest rate on the loan is higher than on the best savings account.

Read more: Should you overpay your mortgage?

2. Make inflation-proof investments

Investing can be another way to beat rising prices, if the returns you make on the stock market, for example, are higher than the rate of inflation.

The simple explanation for this is that, as prices rise, companies can also raise their own prices to compensate. By buying shares in the companies themselves, you can use this to keep pace with price rises. Of course, that’s only if you pick the right companies.

However, investing in assets such as shares comes with the risk that you could lose some or all of your money. If you’re new to investing, check out our guide to investing for beginners.

If you want to reduce the risk, it is best to avoid being too exposed to a small number of assets or sectors. A good way to diversify is to buy into investment funds. Funds can invest in various assets, so  can spread your money across bonds, property and shares in different sectors.

We explain here how to choose an investment fund.

It’s also often seen as better to stay in the market for a few years at least – as that can lower the risk of short term price movements affecting your overall returns.

What investments do well during times of high inflation?

If you like the idea of investing in individual companies, the best stocks to consider during times of high inflation are businesses that can increase the price of their products to cover higher costs without losing customers. This is called “pricing power”.

Companies that have this often command brand loyalty, such as luxury goods businesses such as LVMH, the owner of Louis Vuitton, or big names such as Apple, the tech giant, and Nike, the sportswear maker.

Firms that deliver essential products or services, such as healthcare or energy, such as the drug maker Pfizer or Shell, also find it easier to increase prices without affecting sales. 

You can also find investments that are designed to keep up with rising prices. Inflation-linked bonds are loans to governments or companies, paying interest that rises with inflation. Check the measure of inflation they track or your returns could be lower than you expect. RPI, for example, is the retail prices index and tends to be higher.

If you want to know more about the different measures, check out our article: CPI vs RPI inflation: what’s the difference?

3. Speak to a mortgage broker

Mortgage rates have shot up in the past few years following the Bank of England’s decision to hike the base interest rate from 0.1% in December 2021 to 5.25% – where it remain for a year until a 0.25% cut in August 2024. A number of lenders cut their rates in the wake of the move.

If you have a tracker or variable-rate mortgage that follows the base rate, or your fixed-rate deal is coming to an end, you have a decision to make.

A fixed-rate mortgage has a set interest rate for two, three, five or ten years, so your repayments will be the same every month for that period. It won’t leave you at the mercy of further base rate hikes. 

But if the base rate falls further, being on a tracker mortgage may make sense. It is a good idea to talk to an independent mortgage broker who can explore the options with you and find the best deals.

Remember that many lenders will allow you to lock into a new deal six months before the end of your current fixed rate. If you can find a better deal during that time, you aren’t committed to accept the higher rate.

Mortgage rates can change quickly so make sure you keep up-to-date and shop around. Those who have a deposit or equity in their home of at least 40% tend to get better deals.

If you’re looking for a new mortgage, try our mortgage comparison tool below to search for the best deals.

4. Earn cashback

Online shoppers can earn cashback at a vast array of retailers by going through websites such as TopCashback and Quidco.

These companies earn money by promoting certain brands on their sites. Every time you click on that brand’s link and make a purchase on its website, the cashback site earns a commission from the retailer – and you get a cut too.

You can earn more by referring someone else: Quidco gives you a cashback bonus for every friend you refer once they’ve earned a £5 cashback, while TopCashback will give you up to £35 once your friend has earned their first £10.

Airtime Rewards is also a great way to get cashback that will help you save money on your phone bill.

You can also get cashback through your credit and debit cards. You can read our round-up of the best rewards credit cards here.

For example, the American Express Platinum Cashback Everyday credit card* pays 5% cashback on purchases up to £100 for the first three months (31% APR). It is then 0.5% on spending up to £10,000, rising to 1% on spending over that amount. 

Meanwhile Chase pays 1% cashback for the first 12 months on purchases made with its debit card.

Polly Arrowsmith, 55, a marketing director living in London, earned £178 through a cashback website last year. She always checks whether she can get cashback before buying something online and she also buys all her Christmas shopping in the Black Friday deals.

“I do like to treat myself, but I’ll never buy anything straightaway unless it’s something I urgently need. I wait to see if the price comes down or if a discount or cashback deal becomes available. Sometimes I’ll wait up to six months to try and get money off.”

5. Sign up to rewards schemes

If you frequently shop at one retailer or supermarket, check if it has a rewards scheme.

The free M&S Bank Rewards credit card earns you four points for every £1 spent at M&S for the first year (dropping to three points per £1 after that) and one point for every £5 spent elsewhere (24.9% APR).

Each point is worth 1p in Marks & Spencer vouchers.

There are deals to be found in other supermarkets’ loyalty schemes. With the Tesco Clubcard you can get a sandwich meal deal for £3.40 rather than £3.90. At Sainsbury’s you can get personalised offers on products you buy regularly if you are a Nectar card holder.

6. Consider property

Investing in property can be a good way to beat inflation and diversify your investment portfolio.

House prices have tended to rise well above the rate of inflation in the past. That is not the case at the moment, with inflation house prices falling on average over 2023, while the RPI inflation measure rose 2.9% while the Nationwide House Price Index for July showed a 2.1% rise.

Inflation is expected to nudge up a little as energy prices rise in 2024, but nothing like what we have seen in recent years. Where property prices are heading is less certain. Some experts point to a fall, others to a rise. However rental prices are on the up, particularly in the bigger cities.

By purchasing property as a buy-to-let investment, you could receive rent as a regular source of income, and landlords may be able to raise rents in line with or above the rate of inflation. 

However, there are costs attached, including stamp duty, capital gains tax (on sales of buy-to-let homes) and income tax on rental income as well as renovation expenses. 

If you’re thinking of becoming a property landlord, read our buy-to-let tips here.

Watch our video below for other inflation busters.

7. Review your spending

While budgeting won’t make the cost of essentials go down, it can make higher prices easier to manage.

Write down how much money is coming in and everything you are spending, then look at where you can cut back.

Cancel unused subscriptions with the company directly, through your banking app or in the subscription settings on your phone.

8. Lower your household bills

Switching to paperless billing, direct debits, turning down your thermostat and installing insulation can help to keep energy costs down.

If you usually wash your clothes on a super-hot cycle, change the temperature to 30C to save electricity and run it on a short wash.

When it’s time to buy or replace an appliance, look for a high energy-efficiency rating. We have more energy-saving tips here.

Make sure that you search around for the best mobile and broadband prices and cut subscriptions that you don’t use.

9. Get money off your childcare

Almost 800,000 eligible families are currently not taking advantage of the government’s tax-free childcare scheme.

Through tax-free childcare, parents get £2 for every £8 they spend on childcare – up to a total of £2,000 per child each year.

This can be used to help pay for the cost of a childminder, nanny, nursery or after-school club.

Find out more here about tax-free childcare.

10. Cut your grocery costs

Tons of food is thrown out by British households every week. Often, people misjudge how much they will need or they are tempted by supermarket offers, which means spending more than necessary.

There are a number of easy ways to cut back on your food bill:

• Know what is in your cupboards and commit to using what is in there
• Go to the supermarket with a shopping list and stick to it
• Don’t food shop on an empty stomach
• Learn to cook on a budget using online recipes 
• Buy individual ingredients such as loose carrots, rather than a bag

You could also use apps such as Too Good to Go or Olio to get local food free or at a hefty discount. 

Polly Arrowsmith shops at all the big supermarkets to compare prices and take advantage of last-minute price reductions.

Polly, who lives in Islington, says her local Tesco reduces prices at 8am, but at M&S and Waitrose it’s 6pm and 7pm respectively.

“I tend to pick my shopping times to coincide with when supermarkets start reducing items on the verge of going past their use-by dates.

“Most products can be used a day or two after the use-by dates. Use your freezer to store the food so you can take advantage of price reductions but don’t have to eat it straight away.”

For other tips, check out: 17 ways to cut the cost of your food bill.

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