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5 income investment ideas for your savings that beat inflation

Due to inflation, the real world value of money tends to decline overtime. This isn’t necessarily a problem if your income increases in line with inflation, but it can be a problem for your savings.

If the interest you earn on your savings is less than inflation, the real world value of your savings will decrease year-on-year. You therefore need to make sure that your savings are invested in a way that will give you higher than inflation returns, so the spending power of your savings steadily increases, rather than decreasing.

Falling interest rates on savings accounts

Just over a year ago we were talking about savings rates of around 2.10% for a 1 year fixed rate bond and 2.35% for a 2 year fixed, whilst a 3 year would get you 2.70% AER fixed. Now, our best rates will earn you 1.35%, 1.53% and 1.61% AER respectively. This is equivalent to reductions of between 35% and 40%.

The situation is even worse for longer term bond holders. We have many customers who are coming out of five year fixed rates where the rate on offer was around 4.60%. Now, they are looking at 2.01% as the market leading five year fixed rate, a significant reduction in interest of 56%. For someone with a maturing lump sum of £50,000, this is equivalent to their income dropping from £2,300 per year to £1,005.

5 places to invest your savings to beat inflation

To help your savings beat inflation, it can be a good idea to invest them, rather than just relying on the interest you would earn in a straight savings account. The following five investment ideas offer the opportunity to achieve above-inflation returns on your savings.

They can also be used in conjunction with your annual ISA allowance (£20,000 for the 2017/18 tax year) to help you avoid paying tax on the returns you earn, maximising their value.

1) Focus FTSE Monthly Income Plan

This plan offers:

  • Fixed monthly income of 0.35% (equivalent to 4.20% annually)
  • Your capital returned at the end of the plan as long as the FTSE does not fall by more than 40% relative to when the plan started
  • Minimum investment of £5,000
  • Maximum investment of £20,000 for ISA accounts
  • No limit for direct investments

Click here for more information about the Focus FTSE Monthly Income Plan »

2) Investec FTSE 100 Enhanced Income Plan

This plan offers:

  • 38% interest every month for five years, equivalent to 4.56% gross per year
  • You capital back when the plan ends, subject to the performance of the market
  • Minimum investment of £3,000
  • Maximum investment of £20,000 for an ISA account
  • Maximum investment of £1,000,000 for a non-ISA account

Click here for more information about the Investec FTSE 100 Enhanced Income Plan »

3) Investec Enhanced Kick Out Plan

This plan offers:

  • A kick out facility with the potential for the fund to mature at the end of each year of the six year plan
  • The kick out returns 10.25% if the five-day average closing level of the FTSE 100 is higher than when the plan began on the anniversary of the plan’s start date each year
  • Minimum investment of £3,000
  • Maximum investment of £20,000 for an ISA investment
  • Maximum investment of £1,000,000 for a non-ISA investment

Click here for more information about the Investec enhanced Kick Out Plan »

4) Virgin Money Stocks and Shares ISAs

Virgin Money offers a range of stocks and shares ISAs which can allow you to earn above-inflation returns on your savings. They have various ISAs available offering different levels of risk and return to match your savings goals.

There ISAs include funds investments into government bonds and highly rated companies, funds which diversify your money between UK and overseas investments and a UK FTSE All-Share Fund which puts your capital into 600+ companies on the FTSE All-Share Index.

Click here for more information about the Virgin Money Stocks and Shares ISA »

5) Nutmeg ISAs

Nutmeg offer straightforward, flexible investment ISAs for both experienced investors and those new to investing. You can open a Nutmeg ISA within minutes online with a minimum investment of £500 and no minimum investment period. This means you can withdraw your money whenever you like.

Nutmeg’s diversified investment portfolios are managed by an experienced team for a fee of 0.25-0.75%.

Click here for more information about Nutmeg ISAs »

Compare income investment ideas for your savings

Take a look at our range of investment ISAs for more ideas on how to invest your savings to help you beat inflation so you can maintain and grow the real world value of your savings.

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