Icesave Veterans Association

amistupid · 13 February 2009 at 9:32PM

Last year I'd worked out that we could have grossed £6,000 interest, heavens knows what that would be now.

Iced_Off · 13 February 2009 at 9:34PM

amistupid wrote: »

Last year I'd worked out that we could have grossed £6,000 interest, heavens knows what that would be now.

Ah, yes.....I remember the days of good interest...(sigh....) :rolleyes:

Iced_Off · 13 February 2009 at 9:37PM

I suppose there's one rock solid way to push up interest rates - I could borrow a huge amount of money!

Whenever I have money invested the interest rate goes down, and whenever I borrow it goes up. :rolleyes:

Just watch what I do and do the opposite!

amistupid · 13 February 2009 at 9:38PM

Tibs did you see the thread on how much you should save according to some American bloke. He devised a formula stating Age times 0.1 times annual gross salary? It's been repeated on this board many times. Makes me feel very inadequate.

Tibbledom · 13 February 2009 at 9:42PM

At the risk of being controversial lower interest rates don’t bother me in the slightest. It is the real return on savings after allowing for inflation that is important.

However most people can’t see it that way.

Psychologically if you have say 100K in savings and that falls during the year to 95K when inflation is 0% then that seems a bad thing.

However if inflation is 10% say over the year and your savings stay at 100K over the year you feel happier.

Brute logic tells you correctly that you are much better off in the first scenario because relative to what items cost your remaining savings are worth more.

But the psychological reaction is to prefer the second scenario. That is why people think low interest rates are a bad thing for savers. But I would argue that logic tells you otherwise.

amistupid · 13 February 2009 at 9:46PM

Tibbledom wrote: »

At the risk of being controversial lower interest rates don’t bother me in the slightest. It is the real return on savings after allowing for inflation that is important.

However most people can’t see it that way.

Psychologically if you have say 100K in savings and that falls during the year to 95K when inflation is 0% then that seems a bad thing.

However if inflation is 10% say over the year and your savings stay at 100K over the year you feel happier.

Brute logic tells you correctly that you are much better off in the first scenario because relative to what items cost your remaining savings are worth more.

But the psychological reaction is to prefer the second scenario. That is why people think low interest rates are a bad thing for savers. But I would argue that logic tells you otherwise.

Agreed lots of learned posters have said the same. But have you any thoughts on the above formula as to how much you should have actually saved

Iced_Off · 13 February 2009 at 9:47PM

Well said Tibs! I'm not sure of the exact rate of inflation at the moment, but I'm sure I heard on the news (so it must be true

) that it's greater than interest rates at the moment. That's what made me feel I was losing money in some of my accounts. I'm certain I could be wrong though (no, I hear again..)

Tibbledom · 13 February 2009 at 9:51PM

amistupid wrote: »

Tibs did you see the thread on how much you should save according to some American bloke. He devised a formula stating Age times 0.1 times annual gross salary? It's been repeated on this board many times. Makes me feel very inadequate.

Did see it. I don't think the formula provides any insight into the mathematics of saving at all.

I think one of the big issues for people who have retired at a relatively young age and are living off savings is how much to put into savings accounts and how much into share type investments. Historically speaking savings accounts before tax earn at most 1% above inflation. Historically share type investments have over long periods earned 4% above inflation (not to say they will in the future of course).

Now we don't need the recent crash to tell us shares are risky but people don't realise they are taking a completely different risk by putting all their money into savings and nothing into shares. The risk is that the low real returns (i.e. after inflation) can mean that someone who puts all their money into savings will run out of money in later life.

amistupid · 13 February 2009 at 9:53PM

What I can't get my head around is what about people without occupational pensions who actually rely on interest from their savings to pay everyday bills how do they cope.

amistupid · 13 February 2009 at 9:57PM

amistupid wrote: »

What I can't get my head around is what about people without occupational pensions who actually rely on interest from their savings to pay everyday bills how do they cope.

Spend their savings I suppose, because it's money that they could have invested in a pension plan.

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