Savings - to become worth less and less?

PJD

Are our savings to become worth less & less, - much like houses and stocks?

Coupled with the fact that sterling against other currencies is worth less and inflation going through the roof??

Apart from placing money in the highest paying savings accounts, are people looking for other things to do with their money?

apt

Inflation isn't going through the roof. It should fall rapidly over the next year. For those who have to live off savings/capital next year will probably be a better year than this despite the fall in bank-rate.

Reaper

There are 2 views on inflation. One is that it will fall due to recession and the other is that it will rise due to all the government borrowing going on.

My guess is it will be both - going down in the short term then up as we come out of recession, but who knows.

Reaper

As to what I am doing with my money - for now it is going in savings (eg I managed to get the briefly offered Egg fixed rate account which allows more contributions) then I will be looking to move over to highly diversified global investments for the long term once I think the worst of the recession has been factored in. I don't think the time is right yet though.

I may also look to invest in buy to let property in about a year's time. Surprising I know, but the housing shortage in the south isn't going to go away.

PJD

What are everyone's thoughts on the idea that the Government are deliberately trying to install a healthy dose of inflation to cure the huge debt problem?

In which case our savings will be worth less and less, - God forbid we'll encounter hyper inflation - our savings will be worth !!!!!! all

Reaper

I think that's rubbish. They government is struggling to keep a grip on the economy as it is without deliberately letting it go off the rails.

Furthermore governments tend to be obsessed with inflation. Labour gave the Bank of England its independance (more or less) with the prime objective of keeping inflation under control. Fortunately they have been sensible and tried not to ruin the economy doing it.

It is also by no means certain inflation will happen.

Finally even if it does inflation won't help the government get out of its foreign loans which won't be priced in sterling.

There are a lot of wild theories circulating. I suggest you throw that one in the bin with the rest of them.

cowbutt

Reaper wrote: »

There are 2 views on inflation. One is that it will fall due to recession and the other is that it will rise due to all the government borrowing going on.

My guess is it will be both - going down in the short term then up as we come out of recession, but who knows.

Your views are much the same as mine, though my reasons for predicting inflation are down to the increase in money supply by the three (so far!) mechanisms of 1) the £500b bank bailout 2) bringing forward of public sector capital projects and 3) reduction of interest rates. I suspect this makes me a monetarist in outlook.

cowbutt

PJD wrote: »

What are everyone's thoughts on the idea that the Government are deliberately trying to install a healthy dose of inflation to cure the huge debt problem?

In which case our savings will be worth less and less, - God forbid we'll encounter hyper inflation - our savings will be worth !!!!!! all

The thought has occurred to me; given the decade of house-price inflation, what are the options available to us:

1) Have employers pay their personnel more so old average ratios of 3x earnings can be met.

2) Allow a 30-50% fall in in house prices.

3) Quietly allow inflation to rise by increasing the money supply, making it quite reasonable for employees to ask for large payrises. Obviously, this sucks for anyone who's income isn't index-linked, but it's probably less likely to generate unfavourable headlines for the government.

cowbutt

Reaper wrote: »

As to what I am doing with my money - for now it is going in savings (eg I managed to get the briefly offered Egg fixed rate account which allows more contributions) then I will be looking to move over to highly diversified global investments for the long term once I think the worst of the recession has been factored in. I don't think the time is right yet though.

I may also look to invest in buy to let property in about a year's time. Surprising I know, but the housing shortage in the south isn't going to go away.

I'm torn between keeping a large proportion of my savings in a National Savings Index-Linked Savings Certificate (RPI+1%, tax-free) for three years whilst I weather the storm, or looking out for house-upgrade bargains in a year or two and let my current home out.

ian-d

I'm not happy with the way things are going, whilst still respecting the rate cut. The problem for me is that I'm fairly comfortable, having worked hard all my life so far. The way I see it I now have savings that don't earn much in comparison to what they did a few months ago, and now have a house that is potentially worth less than it was, despite being brand new and in a sought after area. Fortunately my house value is never going to drop to the level of my mortgage, but feel for those whom had equity in their house and now don't!

And why do people like me and others on here suffer, so that the government can get consumers spending on things they don't need again, building up debt, buying things they can't afford, and seemingly I suffer for it!

I know some will say "atleast you have money" but why should we be given the short end of the stick, we are the ones putting money into savings accounts that fund other's loans, credit card debts etc. I think considering this, rates should remain high on savings accounts so our money stays in the banks, doesn't go into alternative investments, or worst of all for the government, out of the country!

....or am I missing the point?

qamwc1

Has there been an increase in money supply? The key measure of money supply is how fast money circulates. If A get £1 and spends it by buying something from B and B spends it by buying from C - then that might lead to inflation as money chasing is fixed amount of economic output allowing for people to raise prices. If the on the other hand A get £1 but he saves it and after a while spends 50p by buying from B etc. then that could be deflationary as sellers reduce prices to shift the products.

The banks are taking money in but not giving it out - a reduction in money supply. HMG is putting money in - up to £50bn or £60bn, the rest up to the £500bn is guarantees and not money. We don't want the same asset/debt bubble so we want the banks to keep taking money in but no lend it out again as low interest rates. Although base rate is down - BoE are unable to control the price of money - LIBOR is still higher. This means demand is higher than supply i.e. interest people will have to pay will be higher to borrow.