How to beat inflation in Ireland

As inflation continues to affect the purchasing power of your money, understanding how to protect your savings from inflation is particularly important. This article explores four strategies, including high-interest savings accounts and other investment options, to help you combat the impact of inflation in Ireland.

High inflation is causing rising living costs in Ireland and across Europe. As prices for essentials like food, energy, and fuel increase, your money buys fewer goods and services, and this also leaves less disposable income for savings or non-essential expenses.

Inflation also impacts your finances in other ways. It can increase your mortgage payments, reduce the value of your savings, and raise borrowing costs. Businesses are also affected, which can lead to further economic uncertainty.

This is why it can be a good idea to take a look at your financial situation and make sure your money is in the best possible places. Knowing how to outpace inflation can help to maintain the value of your cash.

With the ongoing cost of living crisis, you might be wondering how to protect your savings from rising prices. If you want to know how to beat high inflation, there are steps you can take to lessen its impact and maintain your purchasing power.

The following strategies are intended to give some ideas for getting the most from your savings during challenging economic times. Of course, the best approach for you will depend on your financial situation, savings goals, and risk tolerance, so you might consider getting advice from a financial advisor if you’re unsure.

Here are four ways that can help protect your money from inflation:

Do you know the interest rate you’re earning on your savings? Many people make the mistake of leaving their money languishing in low-interest savings accounts. Especially during periods of high inflation, it can be important to shop around for the best rates. 

When comparing savings providers, it might be worth looking beyond the traditional high street banks, as you can often find better deals with alternative providers. These banks often offer more competitive deals. Currently, Raisin Bank offers competitive rates on fixed term deposit accounts that exceed the current inflation rate, potentially allowing your savings to grow faster than the cost of living.

While there is no guaranteed return from investing, and also risks, investing can sometimes be an effective way to beat inflation. You could focus on financial assets that typically yield higher returns than savings interest rates. 

If you’re interested in inflation-proof investments, here are some options you might consider:

• Equities (stocks and shares): With equity investments like stocks and shares, you’re investing money into a company by purchasing their shares on the stock market. Historically, stocks have shown potential to outpace inflation over the long term, although there is no guarantee that this will continue.

• Government bonds: You could consider investing in government bonds, particularly inflation-linked bonds, which adjust their value based on inflation rates.

• Real Estate Investment Trusts (REITs): REITs can provide exposure to real estate assets such as office buildings, retail centres, and residential properties without requiring direct property ownership, offering income potential through dividends.

• Diversified portfolios: A diversified portfolio combines different asset classes such as stocks and bonds, which can help spread the risk that comes with investing, while aiming to achieve returns that outpace inflation over the long term.

It’s worth keeping in mind that with any form of investment, you run the risk of losing all your money. It can help to get in touch with a financial advisor to discuss your individual financial situation. If you’re keen to learn more about investing, read our page on where to invest your money.

In Ireland, using all the tax breaks available to you can be a strategic way to soften the impact of inflation on your savings. 

Here are a few key things to think about:

• DIRT (Deposit Interest Retention Tax): DIRT is a tax on the interest earned from savings deposits in banks and credit unions. To optimise your savings, you could consider:

  • Tax-free savings accounts: Explore options like the Government savings scheme (prize bonds), which offer tax-free interest up to a certain limit.

  • DIRT exemptions: Some people, such as those over 65 or those with certain disabilities, may not have to pay the DIRT. You can check if you’re eligible to pay less tax on the Government’s DIRT webpage.

• Investing in a pension scheme can also be a valuable strategy for reducing your tax burden in Ireland. The government provides tax relief on your contributions, effectively boosting your retirement savings. The amount of tax relief you receive is based on your taxable income, potentially up to the highest income tax rate applicable to you. See our page on pension contribution limits for more information.

Knowing how to beat inflation is not just about what you can do; ideally, your salary should increase in line with inflation too. Increasing your salary can be the most effective way to mitigate the effects of high inflation. However, as this is not always possible, you could try finding ways to review your finances through budgeting.

You could start by creating a budget that prioritises essential expenses while reducing non-essential ones. You can look for opportunities to save by looking at all your household bills such as utilities or subscriptions. The idea of regularly reviewing your budget is to gain a clearer understanding of your income and outgoings, and to be in a stronger financial situation to weather any economic uncertainty.

This really depends on your timeline, and whether your financial goals are short-term or long-term. For short-term goals, i.e. those you plan to achieve within five years, an inflation-beating savings account could be a safe choice. You don’t need to worry too much about inflation eating into your savings for this sort of period. However, for longer-term goals, inflation becomes more of a factor to consider.

So if you’re thinking long-term, it might be worth exploring options like investment funds, which aim to give your money the chance to grow and potentially outpace inflation over time. But for short-term needs, a savings account with competitive rates can be a secure choice.

Of course, the inflation rate can also fluctuate, so, depending on the rate of inflation and the savings accounts available at any given time, it may not always be possible to beat inflation.

At Raisin Bank, our marketplace offers high-interest savings accounts from a variety of partner banks.

Our fixed term deposits provide some of the most competitive rates on the market, making them worth considering if you want to protect your savings from inflation. If you prefer flexibility, demand deposit accounts offer competitive rates with withdrawals whenever you need them. 

To start, simply register for a Raisin Account today.

Note: The contents on this page serve for general information and do not constitute financial advice.

Inflation is the ongoing increase in prices across an economy over a specific period. It is measured broadly, reflecting overall price rises or changes in the cost of living within a country. For example, if a loaf of bread that once cost €1 now costs €1.10, this suggests inflation is at play.

Inflation erodes the purchasing power of money over time. As another example, if someone regularly spends €50 on their food shop, inflation may cause the same €50 to buy fewer items than before. Last year, €50 might have bought a week’s worth of groceries, but due to inflation, it might only cover a few days’ worth this year.

The Central Statistics Office (CSO) measures inflation in Ireland using the Consumer Price Index (CPI), which tracks the average change in prices over time for a market basket of goods and services. This data is used by national governments and policymakers and influences their decisions on interest rates, wages, pensions, and social benefits.

Inflation measured by the CSO has been high in recent years, with rates of 7.8% in 2022 and 6.3% in 2023. As of April 2024, the annual inflation rate is approximately 2.6%, which indicates that prices are still rising, but at a slower pace.

Over the past five years, the Consumer Price Index (CPI) inflation rate in Ireland has seen highs and lows. In 2019, the inflation rate was relatively low and stable at 0.9%. The following year, in 2020, the rate decreased to 0.5%, largely due to the impacts of the COVID-19 pandemic. In 2021, the inflation rate saw a significant rise, reaching 2.4% as the economy began to recover. This upward trend continued dramatically in 2022, with the rate surging to 7.8%, driven by increased energy prices and supply chain disruptions. In 2023, while the inflation rate remained high at 6.3%, it was slightly lower than the previous year.

If the interest rate on your savings is higher than the inflation rate, your savings will grow in value over time. However, if the interest rate is lower than inflation, your savings will actually lose value.

Whenever your savings don’t grow as fast as inflation, you’re basically losing money. This is especially a problem for those in retirement relying on their savings, as inflation can gradually eat away at their purchasing power. This makes it harder to maintain their standard of living.

As inflation goes up, central banks often increase interest rates to discourage spending. These higher rates mean borrowing money becomes more expensive, making existing debt even costlier, especially for credit card holders. This is why it might be a good idea to pay off any debts with high interest rates that you might have. However, it’s always worth consulting a debt or financial advisor to discuss your individual situation.