UK consumer price inflation came in at 4.5% in August 2011 in what has been a series of numbers that are way above the Bank of England’s 2% inflation target. For investors and savers this represents an insidious assault on their wealth, but there are investments tailored to dealing with inflation. By Justin Pugsley

The hunt for inflation-protected investments has been on for nearly two years and it’s not hard to see why with the old retail price index measure putting inflation at an even worse 5.2% for August. In fact UK inflation has been consistently above 2.4% since December 2009 using the RPI index and over 3% since January 2010 under CPI and so far this year it has been generally higher than in 2010.

Clearly, fighting inflation is not the Bank of England’s big priority right now, as it is trying to reinvigorate the flagging economy. Baring a major economic recession, inflation looks as if it is here to stay for the foreseeable future. Though, admittedly it’s nothing like the 1970s when inflation topped out at 24.2% in 1975, but 5% inflation does nonetheless erode wealth. 

The good news is that there are a growing number of investments designed to protect your wealth against inflation, but unfortunately they all involve different degrees of risk.

Inflation protected savings accounts

The safest and easiest one on the market is the Post Office, which has a three-year savings account with the interest rate linked to inflation at a rate of RPI + 0.5% a year and a five-year one at 1.5% a year. Unfortunately, the interest is taxable, which made the government’s National Savings & Investments, inflation-linked savings accounts so brilliant, the interest wasn’t taxed, but sadly they’ve been withdrawn. Also, the Post Office scheme is actually operated in conjunction with the Bank of Ireland, but account holders are covered up to GBP 85,000 under the UK Financial Services Compensation Scheme if it was ever to go bust in the UK.

But keep a look out in the personal finance sections of the main newspapers as other financial institutions occasionally launch inflation-linked savings accounts. Recent ones include the Cambridge Building Society, Yorkshire Building Society and Santander. But these investment accounts seem to come and go quite quickly. But do study the terms and conditions carefully before committing your money.

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