What is inflation?

Essentially, inflation is an increase in the price of goods (clothes, food, etc.) and services (hairdressing, plumbing, etc.) over a period of time.

It's calculated by taking the cost of something today - such as a pint of milk - and looking at how much it cost this time last year. This cost comparison is done on a wide variety of items known as the 'basket of goods and services' which the Office for National Statistics then averages.

Inflation is expressed as a percentage based on the increase in prices of the items in the basket. So, if your pint of milk cost £1 last year, and £1.03 this year, inflation has risen by 3%.


Is there a drawback to a higher inflation rate?

The UK's inflation target is 2% year on year. Controlled inflation can be positive for the economy. But if it jumps quickly or unpredictably, it can make it difficult for people to know how much to spend, save, or invest.

How might inflation impact me?

Day to day, inflation changes how much your money is worth. If there is a higher inflation rate, your money won't go as far, simply because things cost more.

Look at the image to see an example of how the buying power of £10,000 would drop by £900.82 between 2021 and 2022, with inflation currently at 9.9%.** The rate of inflation can fall as well as rise.

*Figure has been rounded up to the nearest whole number. **Source: Office for National Statistics - Consumer price inflation, September 2022.

Impact of inflation on the buying power of £10,000 cash savings.

Inflation calculator

How will the rate of inflation affect my cash held?

Let us know how much cash you hold and what the inflation rate is and we'll work out the future buying power of your cash. Our inflation calculator is based on the inflation rate remaining the same for the year.

For information, the inflation rate at September 2022 is 9.9%*

My result

Based on these details, we estimate that your cash will have the buying power of ##value_inf## in a year’s time. This is based on an inflation rate of ##inflation##%.

Please use the calculator as an estimate. It does not include interest you would earn over time. The rate of inflation can fall as well as rise.

*Source: Office for National Statistics - Consumer price inflation. For an up-to-date view, visit the Office for National Statistics and review column 'CPI - 12 month rate'.

Why savings are still important

Cash savings are still really important for your financial security as they generally give steady growth and easy access. They can help with short-term goals, planned spending, and any unforeseen payments. So, it's good to aim for a healthy savings balance.

With any money left over, it could be worth getting it to work harder. Inflation might affect your savings, but there are options that may help to reduce the impact of it. This could include investing, topping up your pension, overpaying on your mortgage or speaking to an expert adviser.

Think about investments

Investing could offer better returns than savings and increase the value of your money over time.

There is an increased risk in investing compared to cash savings, as the value of your investment could go down as well as up, whereas cash savings will offer steady growth. You could help to reduce the potential negative impact of inflation, and increase your returns, by investing for the medium to long term (5+ years). Spreading your money across a range of investments could help diversify your risk.

When investing, your capital is at risk. The value of investments, and income from them, can fall as well as rise so you may get back less than you invest. If you're unsure about investing, seek independent advice. There will usually be a charge for this advice.

Learn more about investments

Review your pension options

Your pension is a longer-term investment option with the aim of achieving a positive return over time, which may reduce the impact of inflation.

Paying more into your pension now could be an option worth considering if you haven't retired yet. This is because you'll normally get tax relief on your contributions. If you're in a workplace pension scheme, your employer may also match your contributions.

If you have retired, you should regularly review how much retirement income you need. You can then decide whether to fund this from your savings or remaining pension pot.

The retirement benefits you receive from your pension plan will depend on several factors. This could include the value of your plan when you decide to take your benefits, which isn't guaranteed and can go down as well as up. The value of your plan could fall below the amount paid in. Tax treatment depends on individual circumstances and may be subject to change in the future. It can be a good idea to take expert advice before taking any action.

More about pensions

Overpay your mortgage

Overpaying on your mortgage could help you save interest you might have paid, which could beat the return you get from your savings account.

Image shows an overpayment of £10,000 based on a £100,000 repayment mortgage.

This illustration shows an overpayment of £10,000 based on a £100,000 repayment mortgage, which has 10 years remaining. This is at an assumed interest rate of 3% over the whole remaining term.

Always check that your mortgage lender allows overpayments and no early repayment charge or other fees are payable. You may need to talk to your lender if you want the effect of your overpayments to reduce the term of your mortgage.

Overpayment calculator

Get personalised financial advice

Knowing how to make the most of your money, especially in times of inflation and economic uncertainty, can feel overwhelming.

Our partnership with Schroders Personal Wealth can provide you access to speak to a financial adviser and have an initial consultation at no cost. Speaking to an expert adviser could help as they’ll talk you through your options and develop a personalised financial plan to help you make the most of your money.

After you’ve had your adviser consultation, there’s no obligation to take things further. Fees and charges will only apply if you decide to take out a product or service.

To be eligible, you need to have at least £100,000 in sole annual income, or £100,000 spread across sole or joint savings, investments and personal pensions.

Learn more about Schroders Personal Wealth

Lloyds Bank will not share any information with Schroders Personal Wealth unless you give your express permission.

Help and guidance

We have a range of useful guides to help you make the most of your savings.

Savings calculators

Set up your savings plan with the help of our calculators.