Investing to beat inflation

A balanced portfolio of investments can help you meet the challenges of fluctuating inflation and interest rates and make the most of your savings.

Key takeaways

A higher than average inflation rate means that, over time, the purchasing power of your savings may be reduced.

Building a diversified investment portfolio can help protect your money against inflation.

Over time, equity investments such as stocks and shares tend to provide greater returns than the average rate of inflation, although this may not always be the case.

How high inflation rate impact spending power

Interest rates and inflation rates can fluctuate dramatically around the world, as we have seen since 2025. These shifts can have a very real effect on the spending power of your savings and investments, as well as your day-to-day household expenditure.

Rising inflation means most things cost more. The knock-on effect is that any savings you have won’t buy as much in the future, unless the interest you are earning on them outstrips the rate of inflation.

Since 2025, many countries experienced periods where inflation rates exceeded interest rates on cash savings. This meant that traditional cash deposits or similar safe options simply couldn’t deliver the real growth needed to keep pace with the rising cost of living. Food and energy prices saw notable increases in various regions amid global supply pressures and geopolitical events.

Although global headline inflation has eased somewhat, projections for 2026 show it still hovering around 3.7% on average (down from about 4.2% in 2025), according to the IMF and other forecasters. Core inflation (excluding volatile food and energy) is expected to remain around 2.8% globally. Many central banks, including the Federal Reserve, ECB and Bank of England, continue to target around 2% inflation over the medium term but progress has been uneven across advanced and emerging economies.

Predicting how interest rates will respond remains challenging. Central banks worldwide have taken divergent paths: some have paused or limited further cuts due to persistent inflationary risks (influenced by energy prices, tariffs, or domestic factors), while others monitor closely for signs that inflation is sustainably returning to target before adjusting policy. Geopolitical tensions and commodity price swings continue to add uncertainty.

It’s a wise idea to regularly check the interest rates on your savings accounts, cash ISAs (or equivalent tax-advantaged accounts in your country), or other deposit products. Compare them against the latest inflation figures released each month to assess whether your money is truly growing in real terms.

While higher-than-average interest rates are always encouraging, savers should be mindful that in many jurisdictions, savings income may be subject to tax once it exceeds your personal savings allowance.

In a global environment of ongoing uncertainty, diversifying across different assets, currencies or inflation-protected options can help protect purchasing power over time. Staying informed and reviewing your savings strategy periodically remains key.

will a bank account protect my savings if inflation rises?

When it comes to beating inflation, relying solely on traditional high-street or high-street-equivalent bank savings accounts isn’t always the most effective strategy around the world.

While many banks and financial institutions offer interest on instant-access savings accounts, term deposits or tax-advantaged cash products, typical high-street rates often fail to outpace, or even keep pace with inflation. As we have seen since 2025, this gap means the real purchasing power of your savings can gradually erode over time.

Globally, inflation has continued to moderate but remains above many central banks’ targets in numerous countries. According to the latest IMF projections, worldwide headline inflation is expected to ease from around 4.2% in 2025 to about 3.7% in 2026, with core inflation (excluding volatile food and energy prices) hovering near 2.8%. However, outcomes vary significantly: advanced economies are generally closer to their 2% targets, while some emerging markets and developing economies still face higher rates, sometimes in the mid-to-high single digits or more, influenced by energy prices, supply disruptions and geopolitical factors.

When there is a persistent gap between the inflation rate (often measured by the Consumer Price Index or equivalent) and the interest rates offered on standard savings products, it becomes difficult to find conventional cash savings options that deliver positive real returns (i.e., returns above inflation). Central bank policy rates have shown divergence since 2025, with some institutions holding steady or even considering hikes due to renewed inflationary pressures from commodities and global events, while others have paused further easing.

This environment highlights the limitations of depending only on basic bank deposits. Many savers and investors worldwide are exploring broader strategies to help protect and grow their money in real terms. These can include diversifying into assets that historically have shown resilience during inflationary periods, such as inflation-linked bonds, certain equities with strong pricing power, real estate, commodities or gold, while carefully considering risk, liquidity needs and local regulations.

Staying informed about both inflation trends and available savings or investment rates in your country, and periodically reviewing your options, remains essential in today’s uncertain global economic landscape.

How long-term investing can help you beat inflation

If you’re planning on saving over the long term, then investing could be a better way to shield your money from inflation.

The key to beating inflation is by investing in assets which produce a higher rate of return than interest rates. Over the long term, that tends to be equities, stocks and shares. They have the ability to outpace inflation, although that doesn’t always guarantee that they will.

You should be aware, however, that investing does come with a certain degree of risk. An adviser will always discuss what level of risk you feel comfortable with and help you choose a diverse portfolio that’s appropriate for you and your long-term financial goals.

Diversification

Spreading your investments across different types of assets, such as equities, bonds or property, is also a good way to diversify and strengthen your portfolio.

Different assets may perform differently under different economic conditions. No single type of asset will be the best performing one forever, so by keeping a diversified portfolio, you can help make your investments more resilient. Whatever inflation and interest rates are doing.

Please be aware past performance is not indicative of future performance.

Sources

• International Monetary Fund (IMF), World Economic Outlook, April 2026.

• J.P. Morgan Global Research, Global Inflation Forecast 2026, February 2026.

• Bank of England, Monetary Policy Report and policy updates, 2026.

• HM Revenue & Customs / UK Government, Income Tax rates and allowances for the 2026/27 tax year .