Many Britons are unsure of the effect that rising inflation will have on their savings, a new report has indicated.

According to National Savings & Investments, nearly a third (31 per cent) of people questioned in a recent study admitted that while they understood the concept of inflation, they did not understand how it would affect their savings. Furthermore, nearly one in ten (nine per cent) said they had no idea what inflation meant, let alone how it would affect them. An additional 28 per cent said they were unsure what effect tax has on the money they put away.

John Prout, sales director at the group, explained that inflation maps the rise of prices over time. As an example of the way that people are affected by inflation, he commented that a consumer would be able to buy less with 100 pounds in a year’s time than they would today. He also pointed out that inflation can be caused by a number of factors including salary increases, growing demand for particular items or a drop in supply.

“People are more likely to think about how inflation affects the price of their shopping basket, but not how it affects the value of their savings,” he claimed.

For those who have found their available funds shrink as the rate of inflation rises and demands on spending such as fuel, transport and energy costs soar, taking out a debt consolidation loan may prove an effective way to manage money more efficiently. In opting for this type of loan, people may find they are able to spread their repayment commitments over a longer period of time and reduce the strain on their monthly expenditure as the financial climate grows increasingly clammy.

Mr Prout warned that consumers may increase the strain on their finances further if they fail to put away their expendable income into savings vehicles which offer an interest rate which is higher than or equal to the current rate of inflation. He explained that with recent findings from the Office for National Statistics putting the retail price index – a common benchmark measure of the rate of inflation – at 3.98 per cent, consumers should look for an account that offers a higher level of interest than this.

Further statistics from NS&I have indicated that an awareness of the impact of inflation seems to increase with age, with 55 to 65-year-olds seen to be the age group most familiar with it. While 17 per cent of people in this bracket said they were unsure of how inflation would affect their savings, such a proportion rose to 41 per cent among 16 to 24-year-olds.

Consumers who have found themselves blindsided by the recent financial turmoil could find that taking out a debt consolidation loan may prove to be an effective way to get finances back on track. Opting for this type of loan may be of particular interest to the 14 per cent of people identified in a recent Scottish Widows study who were said to be unable to put more than six per cent of their income aside each month.

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