What does inflation mean for your money?

Inflation occurs when the general prices of everyday items—such as food, heating, and petrol—increase over time. When you hear that the inflation rate is rising, it means that the purchasing power of your money is diminishing; the same amount of money will buy you less than it did previously.

For example, consider a Freddo chocolate. In 2005, a Freddo cost 15p, but today the same chocolate costs 25p. This simple example illustrates how inflation can reduce your buying power. Typically, inflation remains relatively low and manageable. However, when prices increase rapidly, it becomes important to consider ways to protect your finances.

During periods of high inflation, taking advantage of discounts and bargains can help stretch your money further. Additionally, inflation can erode the value of your savings over time. Therefore, it’s wise to compare savings account interest rates to ensure you’re earning as much as possible. Although higher interest rates might not completely counteract inflation, every bit of extra return helps.