inflation rate vs. interest rate

mike22

Are these rates equal at the moment?

Assuming interest rate is for a basic saving account. ~ NET 2.0%

Lokolo

Inflation really depends on individuals....

rb10

There are so many different interest rates available on different accounts, ranging from 0.1% to ~3%, so it's impossible to take a definitive figure.

There are also many different ways of measuring inflation - what do you include in your measure? Even the two main official measures, RPI and CPI, are often a long way apart.

But, it is true that inflation is generally low at the moment, and interest rates are also low at the moment.

john_s_2

The trouble with comparing inflation (whichever official measure you use) with savings rates is that today's savings rates aim to protect your savings against the inflation rate in (say) a year's time.

For example, CPI inflation is presently 3.1%: in December 2008 prices (as measured by the CPI) had increased by 3.1% compared to prices in December 2007.

So if you had put £1000 into a fixed rate savings account in December 2007, paying 3.1%, it would have kept up with inflation come December 2008. There were one year fixed savings accounts paying far higher than 3.1% in December 2007.

Savings rates are historically low at the moment. But if you take a one year fix at 2% (I'm sure such rates are available), then so long as inflation is 2% or less in a year's time, your savings will have kept up with inflation.

The purpose of savings should be viewed as nothing more than protecting your cash against inflation. There are many threads on here that are raging with arguments, mostly concerning people who have been using them for income.