STOP soaring inflation from swallowing up all your money with our ultimate guide to fighting back against the cost of living.
Inflation has rocketed to 3.5% – its highest level this year – meaning more of your money is getting sucked up by rising bills. Top money experts explain how to ringfence your cash and be £100s better off.
Inflation measures how fast the prices of goods and services are rising. It rose to 3.5% in September – up from 3.1% in August.
When inflation goes up, it is bad news for your wallet because your money doesn’t go as far. You need to get a pay rise, or make your existing cash work harder, in order to keep pace.
Luckily, there are simple steps you can take to make your money work harder for you.
Emma Furlonger, managing director for workplace pensions at Standard Life, said: “With inflation running at 3.5%, households may need to find savings equivalent to around 3.5% of their overall spending if they want to maintain the same spending power as a year ago.”
So, if you want to fight back against inflation, slash your bills by at least 3.5% – top money experts explain how to do it.
Food bills
The typical family of four spends roughly £161 a week on groceries, according to research from Confused.com.
So slashing your bill by at least 3.5% would mean you’ll need to cut back by £24.42 a month and £293 over the year.
See if you can sign up to market research companies. You upload your receipt and companies will pay you (or give your vouchers to spend at brands like Argos, Amazon, and Costa Coffee) for the data – The Sun has spoken to shoppers who make £250 a year from this.
Sites you can sign up to include Nielsen IQ and Shoppix.
You could save hundreds of pounds a year by simply switching to a cheaper supermarket. Research by consumer champion Which? found the same basket of food cost over £60 less at Aldi than at Waitrose.
So if you did four shops a month, you’d save £240 a month, and over a year, that’s a £2,880 saving.
You could also buy supermarket gift cards and get some money back on your shopping through cashback apps such as TopCashback or Jam Doughnut, or look through cashback deals through the app.
For example, new customers can currently get £4.50 off a £50 shop at Sainsbury’s. Existing customers can then get 75p back per shop.
Jam Doughnut claims users earn £500 or more a year, while TopCashback says users earn £300 a year on average.
Energy bills
Energy bills are a major expense for households, particularly during the colder months.
Ofgem‘s energy price cap rose to £1,723 a year for a typical household paying by Direct Debit on October 1, up 3.6% from £1,663.
The energy price cap is the maximum amount that suppliers can charge for each unit of gas and electricity.
In order to beat the hikes, aim to slash your bill by 3.5% – which is around £5 a month or £60 a year.
Looking at switching to a fixed energy deal is a sensible idea.
While there are no deals cheaper than the October price cap, you could make savings against January’s price cap, which supplier EDF predicts will go up by 27% to £2,192.
The cheapest fixed deal is from Good Energy, which is an 18 month fixed deal at £1,833 – £359 below the forecast cap, according to Uswitch.
Simple changes to slash your energy bill at home can help.
Turning your thermostat down by just one degree, from 22°C to 21°C, could save around £120 a year, according to the Energy Saving Trust.
Only heat the rooms you need to use, while keeping other rooms at a safe temperature to cut costs too.
Programmable thermostats can help reduce wasted energy by scheduling heating for when it’s needed, while draught-proofing around windows and doors can help prevent heat escaping.
Plugging up draughts around windows, doors and floors could save around £55 a year, the Energy Saving Trust says.
Boost your savings
One of the easiest ways to protect your money against inflation is to make sure your savings are earning AT LEAST 3.5%.
The top easy access savings rate is offered by LemFi 5%, but be aware this includes a bonus rate for six months, after which it falls to 3.04%.
In general, savings accounts paying a fixed interest rate often pay more than easy-access accounts.
The top one-year fixed-rate savings accounts pay up to 5.15%, including Afin Bank, which requires a minimum deposit of £1,000.
A common mistake that some 49.3million people are making is leaving their cash languishing in accounts paying pitiful interest rates of 1.5% or less, according to research by savings app Spring.
If you left £2,000 in an easy-access savings account paying 1.5%, you’d earn £30 over the year.
If you switched to the top-paying easy-access savings account from LemFi, you’d earn around £80.30 over the year.
If you switched £2,000 into Afin Bank’s one-year fixed-rate account paying 5.15%, you’d earn £103 in interest over the year.
Compare the best rates using websites such as Moneyfactscompare.co.uk and MoneySavingExpert.
Ms Furlonger says it may be worth considering a cash ISA.
These are fantastic savings accounts where interest earned on your savings is tax-free.
You can currently put up to £20,000 into ISAs each tax year, although the cash ISA allowance for under-65s is due to fall to £12,000 from April 2027.
Prioritise your pensions
Putting money into your pension can help protect your long-term finances against inflation, thanks to tax breaks from the government.
Basic-rate taxpayers get 20% tax relief on their contributions, so for every £80 they put in, the Government tops this up to £100.
That’s an immediate 25% boost to your contribution, far exceeding the 3.5% inflation rate.
Ms Furlonger said: “This can give your savings a valuable boost.
“Check how your scheme applies tax relief, as higher or additional-rate relief may need to be claimed through a tax return or by contacting HMRC.”
Another advantage of saving into a pension is that investment returns – the profit you make from your investments – within a pension can generally grow tax-free.
But keep in mind you may have to pay income tax when withdrawing your pension, although you can usually take up to 25% tax-free.
Ms Furlonger said that one of the most effective ways to boost your long-term savings is to make the most of your workplace pension.
If you’re aged 22 or over and earning more than £10,000 a year, then you will be enrolled automatically into your employer’s pension scheme.
You pay at least 5% of your annual earnings into your pension, while your employer adds in 3% of the company’s own cash – so you are essentially getting free money.
“It’s worth checking whether your employer offers additional contributions if you increase what you contribute,” she says.
“Even relatively small increases in your contributions can add up over time, if you can afford them.”
Standard Life calculations show that someone earning £30,000 from age 22 and contributing 5% to their pension, alongside 3% from their employer, could build a pot of around £252,000 by age 68 in today’s prices.
Increasing their own contributions from 5% to 7% at age 30 could boost the pot to around £302,000.
That’s an extra £50,000, or almost 20%, although the projections depend on investment returns and fees paid.
Lock in the best mortgage deal
Markets are pricing in four base rate rises by the end of July next year meaning the base rate could sit at 4.75%, according to expert predictions.
That’s bad news for those looking to remortgage, or first-time buyers looking to lock in an affordable deal because fixed rate mortgage rates are heavily influenced by where markets think interest rates will go in the future.
We don’t have a crystal ball so we don’t know for sure if rates will hit these heights.
But to shield yourself against any hikes, the key is to line up a new deal as soon as you can.
If your fixed-rate mortgage is coming to an end, experts recommend shopping around six months before it expires to avoid moving onto your lender’s standard variable rate, as these are often expensive.
It also means you could lock in a cheaper deal before interest rates are expected to rise to 4% next month. And if rates fall later, you can switch onto a cheaper deal.
Nicholas Mendes, mortgage technical manager at John Charcol, said: “Securing a new rate early locks in today’s pricing and protects against further rises, while still leaving room to switch to a cheaper deal if rates fall before it starts.”
Mr Mendes also recommended looking beyond the headline rate and considering fees too.
“The lowest headline rate is not always the cheapest deal,” he says. ]
“Many of the best rates come with fees of £999 or more, so on smaller mortgages a slightly higher rate with no fee can work out cheaper over the fixed period.
“Borrowers should compare the total cost of a deal rather than the rate alone.”