Investors may need to take more risks to boost savings

Martin Payne, the divisional director of Brewin Dolphin, in Leeds, said inflation was hanging around “like a bad smell” and causing havoc for people with savings, because it erodes the real value of money.

Mr Payne said: “In order for savers to get a real return on their money, a basic-rate taxpayer needs to ensure their money is in an account paying at least 4.38 per cent a year, while a higher-rate taxpayer paying the 40 per cent rate needs to be earning interest of at least 5.83 per cent.”

Investment-grade corporate bonds suffer during periods of inflation, while non-investment-grade bonds, which pay a higher yield, tend to struggle during a recession because more companies default, Mr Payne added.

He said: “That is why the bond fund of choice at present is the ‘strategic’ corporate bond fund, where the manager has the flexibility to invest in both grades of bond, depending on their view on the economy.

“Despite the stock market uncertainty, dividends paid by British companies have increased to a record level.

“Inflation and uncertainty go hand in hand, yet the future is far from certain – even more so in light of the recent elections in France and Greece.

“Investors are going to have to wake up and smell the coffee if they want to make the most from their savings and investments – and it may mean taking on a little more risk.”