How inflation hits your savings

ok364125247

Am I missing the point about this article???

How inflation hits your savings

A savings account that pays less than the rate of inflation is eroding your wealth.


Well inflation is at 3.7% so if I understand it correctly most of the saving accounts are money loosing rather than saving!:(


They must be something I do not get,...I hope!

please see article reference below:




How inflation hits your savings

To really know how well your savings are doing, you have to look at it compared to the rate of inflation. Inflation is the measure of the rate at which prices increase, so if savings don't beat inflation after tax, they're losing you money.
Ensure your savings aren't losings...

A savings account that pays less than the rate of inflation is eroding your wealth. An example using simple numbers, should help...

Imagine inflation is 5%

... things costing £1 this year will then cost £1.05 next year
You have £1 in a savings account at 2% interest after tax
... by next year it will have grown to £1.02

Therefore saving's reduced your spending power by 3p/pound

... it's a losings not a savings account.

Lokolo

That is correct. However over the shorterm you are unlikely to see an actual effect.

DavidHayton

ok364125247 wrote: »

Well inflation is at 3.7% so if I understand it correctly most of the saving accounts are money loosing rather than saving!:(

It's worse than that: RPI is running at 4.8%

david

ok364125247

Thanks for that!

So why bother with saving????????

But then again apart from the stockmarket what else is there???

Lokolo

ok364125247 wrote: »

Thanks for that!

So why bother with saving????????

But then again apart from the stockmarket what else is there???

Because if you lose your job, you have savings to be able to pay mortgage. If you have kids, you can afford to buy them presents. If you have a car you can afford to get it fixed.

That's what savings are for

ok364125247

Fair enough, but if you do not have, neither need, a job, no mortgage, no kids, they must be better places to make your money grow above the inflation rate..... or only on dreamland???

Linton

There is - shares & funds. But these investments can be quite volatile (values go up and down over short periods) so you should not plan on cashing them in the next 5 years or so.

Before you go into shares/funds it would be very sensible to ensure that you have say 6 months living expenses in cash, albeit at a less than inflation rate of interest. You can then withstand most emergencies without the need to sell shares/funds when the prices may happen to be low.

jimjames

The yield on share based income funds is approx 4%, still just below inflation on RPI measure but with the long term capital growth of the underlying fund you should beat inflation.

Unlike cash deposits, shares can go up and down in value though.