How to Beat Inflation

By Lauren Leisk, Yahoo7 Moneyhound January 22, 2013, 8:00 am

When you’ve worked hard to put away savings, the last thing you want is for inflation to bite into the returns that you should be receiving.

In an economic sense, inflation is defined as the general increase in prices over time and thus the fall in the purchasing value of money. Think back hard enough and you might remember a time when Paddle Pops were 20 cents!

Putting your money under the bed may be one way to protect you from spending it, but unless that cash is earning you interest at a rate which is higher than inflation, it's loosing value with each year that passes. The current rate of inflation in Australia is 2.0% p.a.

High rate online saving accounts

These days, high rate savings accounts that offer close to 5.0% p.a. are easy to open and free to own, plus they pay the interest you've earned on your cash directly into the account each month. With cumulative interest, you can watch your savings grow faster than if you were waiting until the end of the year for an interest payment.

Compare various high rate saving accounts now at Moneyhound to find out what's the highest rate you can get at the moment.

Fixed term deposits

A term deposit is a more traditional type of savings account. Offering high interest rates if you commit to keeping your money in the account for a minimum term. Penalties can apply if you decide to take the money out prior to the end of the term, which is a good way of inhibiting your urge to use your savings for something you probably don't need.

You can choose your term from 90 days to 5 years, but generally the longer the term of commit the higher the returns. You might also be able to get higher rates or lower fees if you commit to an online only DIY term deposit account.

Compare various term deposit accounts now at Moneyhound to find out what's the highest rate you can get at the moment.

Factor in tax

To beat inflation, any interest paid to you needs to factor in any income tax you'll have to pay on the returns, to ensure you get a real return from your money. Tax rates differ depending on what you earn in a year, however if you're taxed at 21% then consider the below example:

Initial deposit of $10,000 on January 1st with monthly deposits of $200 each month for 12 months. With an interest rate of 5.0% p.a. where interest is paid to you monthly, an inflation rate of 2.0% p.a. and a tax rate at 21%. By the end of the year, you will have $12,967 however you'll have to pay tax on the gains ($623) leaving you $2,344 in front.


Most baby boomers will stand by property as one of the best return on investments that money can by. But remember back in their day property prices were rising by close to 10 per cent each year. These days with a flatter rate of return on property investment, weather property will see you in front really depends on where you buy, when you buy and sell, and how much the property has cost you to own with regards to interest repayments, maintenance, buying and selling fees, etc.

Related: How to save money without even trying

Index-linked bonds

Another way to beat inflation is by finding one of the many index-linked bonds on offer. Although these do require that you lock your money away for a number of years, the amount of interest that you earn is always determined by the state of inflation, so you can be guaranteed to earn an amount that is above inflation without fail each year.


Investing in the stock market is a common way to create wealth and make sure your money is safe from inflation. You have the option of choosing between high risk stocks that could yield high returns, or low risk stocks that have a low but consistent yield. It's common practice to have a stock portfolio that encompasses a little bit of both. A great source of information of all ASX news and stock prices is Yahoo7 Finance.


It has been suggested that gold behaves more like a currency than a commodity. Of all the precious metals gold is the most popular as an investment because historically it has had a tendency to maintain its value when faced with currency failure, inflation, war and social unrest.

Related: 6 Ways to easily make extra cash

Foreign Currencies

The value of currencies changes all the time. Think back to when the US dollar was averaging $0.70, which means you needed to spend about $1.30 Australian dollars to get one US dollar. Now we are past parity, so we only need about $0.95 to get one US dollar. Buying and exchanging foreign currencies can be as costly as it is risky, none the less there are plenty of people who make a viable income from it.

Art and jewellery

Sometimes it takes a key investment such as fine jewellery, gold or a timeless piece of art to keep your savings safe. Take the advice of a notable expert and only buy from a trusted and well-researched source. Consider the storage of your purchase too and insurance against thieves, happy in the knowledge that it is increasing in value each day.

With an uncertain economic climate, it’s more important than ever for consumers to make sure they get the most from their money. With a basic understanding of interest rates and inflation, and a touch of creativity and initiative, you can be sure to put up a good fight.

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