Low inflation means spare cash should be put to work

Low inflation means spare cash should be put to work

With interest rates so low savers should avoid putting spare cash into a deposit account and risk inflation erosion, Callum Bennie of Scottish Friendly has said.

The savings specialist said low inflation could mean households ended the month with more spare cash than they anticipated.

But he said alternative savings vehicles would be the best place for that unused cash.

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Mr Bennie said: “Should Bank of England governor Mark Carney shape the economy the right way and return inflation to the optimum 2 per cent target, we may see an interest rate rise in about a year’s time.

“In the meantime, as household incomes have recently been boosted by the fall in food, energy and import prices, some may find some more spare cash in their pocket at the end of the month.”

He urged people to consider alternative saving vehicles, such as stocks and shares Isas.

Meanwhile, Myles Rix, managing director of Protection at LV=, said people should protect what they have, adding: “Income protection provides working people with a valuable financial safeguard which enables them to meet their monthly commitments, should the unexpected happen.”

Mr Carney has warned that the UK could go into deflation over the course of 2015, but he has anticipated that inflation will pick up towards the end of the year. He has said this would allow interest rates to begin rising in small increments from their historic low of 0.5 per cent in around a year’s time.

Adviser view

Chris Williams, chief executive of Bristol-based Wealth Horizon, said: “The prospect of deflation is now very real and in the short-term it means the price of certain goods and services may fall, providing some relief to consumers.

“Only by diversifying investments into a variety of asset classes will savers be able to generate investment gains that can protect them from what is now an unprecedented period of low returns on cash.”