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Written by Wesleyan

Can stocks & shares ISAs protect your money from inflation?

investments
financial planning
2 min read
Man sitting at desk with laptop on phone

In recent months, UK inflation has reached its highest levels for more than 30 years. On 13th April 2022, the Bank of England reported that inflation had risen to 7%. It may rise even higher in the months to come.

But exactly what is inflation? Why does inflation occur? And what does it mean for your money?

In short, inflation is the rate at which the price of goods and services is increasing. A pound will always be a pound - but as prices for things like food, fuel and energy increase, your pound simply buys less.

If your money is sitting in low-interest bank accounts, that means inflation is steadily eating into the value of your savings.

For example, if inflation were to stay at 7% for the next 12 months*, savings of £10,000 would only be ‘worth’ £9,346 in a year’s time.

You can calculate the potential longer-term impact on your own savings with our inflation calculator.

How are savers responding to rising inflation?

The effects of inflation are leading many people to reconsider how to make the most of their cash. It’s reigniting the age-old debate of saving vs investing.

Wesleyan research shows that a quarter of UK adults (25%) have already made changes to how they manage their money in response to rising inflation. A further third (35%) intend to make changes but are yet to do so – perhaps uncertain of the right moves to make.

Interestingly, more than one in ten (13%) have responded by starting to invest for the first time.

So, could investing in a stocks and shares ISA help stave off the effects of inflation?

Can a stocks and shares ISA protect your money from inflation?

First of all, let’s look at how a stocks and shares ISA works. While cash ISAs and other savings accounts generate interest on your money, a stocks and shares ISA aims to grow your money more significantly over time by investing your contributions in equities (also known as ‘stocks’ or ‘shares’) and other assets.

Of course, no investment can guarantee inflation-beating performance - investment values can go down as well as up. But investing does offer multiple routes to returns, with potential gains to be made from dividends, capital appreciation or bonuses.

Over the long term (most investments are recommended for a minimum of five years), stocks and shares will therefore usually outperform cash savings.

To see how much you might be able to grow your money by investing in a stocks and shares ISA, try our investment calculator.

Is now the right time to invest in stocks and shares?

For savers keen to move their money out of low-interest savings accounts and into a stocks and shares ISA, the only remaining question may be whether this is the right time to invest.

After all, recent events in Ukraine (amongst other factors) have led to some well-documented stock market volatility of late.

However, history shows that markets have a habit of bouncing back after turbulent periods. Following other sharp ‘shocks’ to the market (like the 2008-09 global financial crisis), the subsequent recoveries have gone on to outweigh the losses over the long term.

In reality, there is no ‘perfect time’ to invest – hence the phrase ‘time in the market, not timing the market’. It means the most important thing is not when you invest, but for how long. The longer you keep your money invested, the more opportunity there is for growth.

Indeed, delaying an investment can be a risk in itself. If you’re investing towards a particular target, use our cost of delay calculator to see how much you could save by investing sooner.

A smoother way to invest in turbulent times

If you like the idea of investing in a stocks and shares ISA but you’re concerned about potential volatility, it’s also worth knowing about the ‘smoothing’ feature of Wesleyan’s With Profits ISA.

Smoothing means holding back some returns when market performance is strong, to support returns when the market experiences losses.

With smoothing applied to your investment, you should see less day-to-day fluctuation in your fund value - meaning you can worry less when the market takes a dip.

You can find out more about the With Profits ISA here. Or for personalised advice on what you could do with your money, you can book an appointment with a Specialist Financial Adviser from Wesleyan Financial Services.


Keep in mind that investment values are not guaranteed and can go down as well as up, so you could get back less than you invest.

* The Bank of England’s long-term inflation target is 2%