You can still save and get good returns despite high inflation

When inflation is high, the value of money seems to shift like sand beneath our feet, with a knock-on effect on interest rates and the cost of living.

Despite this, it’s encouraging to see many individuals and families continuing to explore ways to save.

According to Himal Parbhoo, the CEO of FNB Cash Investments, “Fixed deposits, tax-free accounts, and savings accounts are some of the most popular ways to save money for the average South African. However, your money must be working for you because inflation can impact the value of your savings.

During high inflation and market volatility, people who keep their savings will not lose value unless they decide to withdraw the cash. Interest on savings may be lower compared to the inflation rate, but the value of their savings is steady and doesn’t lose any value.”

Parbhoo explained that “there’s no one-size-fits-all approach for saving solutions because it depends on one’s circumstances and goals. Hence, it’s important to explore several solutions to cater for each individual’s or family’s needs.”

He recommended the following options:

• A fixed account might be a decent alternative for someone searching for a guaranteed return on investment. For people who don’t need instant access to their money, fixed accounts are among the best savings options. They offer a guaranteed interest rate for a set period. Since the interest rate will not decrease even if prices rise, this can help people shield their savings from the consequences of inflation.

• A tax-free savings account can be a better option when hoping for tax-free growth. Additionally, it provides a tax-free investment environment, which may enable you to accelerate the growth of your funds. A good investment vehicle for those saving for retirement or other long-term goals or setting up investments for their children is a tax-free account. It is crucial for people who wish to invest using the tax-free option to be aware of the limit on how much they can put into the account each year.

• Savings accounts provide a flexible option to save money. They often have lower interest rates than fixed accounts but allow you to access your money anytime. This can be beneficial and used as an emergency fund.

“You don’t need to halt or pause saving or investing because of a temporary economic difficulty. Saving during higher interest rate periods increases the income you earn over this time. The earlier you begin saving, the more you give yourself a better chance to grow your savings and be better off over the long term. If you have debt linked to the movement of interest rates, be it a car or a bond, the cost of your debt increases with inflation.

Therefore, pay it off as quickly as you can. It might be challenging to stick to your budget in the face of inflation, so it is critical to review your finances regularly. Keep track of your spending to ensure you are not going overboard or spending money on useless items,” said Parbhoo.