Are taxpaying savers all losers?

Mr_Mumble

Stonk wrote: »

I was writing only about the suggestion (in "savers are losing more and more money") that it is not possible to keep up with inflation using a deposit account. We're not actually losing money yet, we're just gaining less than we used to.

Conceeded, if savers aren't paying a mortgage and energy doesn't make up a large proportion of outgoings . Many people do save rather than pay off more on their mortgage though and they do so for good reason. For example: stoozers, those who are penalised for overpayments and anyone who got lucky and fixed below current savings rates.

Sorry about the lack of clarity in my original topic title. The losers comment can be applied in both absolute (compared to inflation now) and relative (to a year ago) terms. Guess I'm being argumentative about both!

Agree on the matter inflation. We can talk forever about what is and what isn't the rate of inflation, how it differs amongst individuals and how the government portrays the numbers.

EdInvestor wrote: »

Isn't the inflation figure forecast to drop quite soon due to lower energy prices?

Yup, on the Bank of England's projections and infamous fan chart. These projections and fan chart also predict a rise to 5.5% for the interest rate . Projections can be wrong of course.

Milarky

BOE rate changes

..from.................... to..................... base rate
4 August 2005......... 2 August 2006 ......4.50%
3 August 2006......... 8 November 2006 ..4.75%
9 November 2006.... 10 January 2007..... 5.00%
11 January 2007...... Present date......... 5.25%

If you are using changes in the BOE rate against RPI you need to 'weight' the effects according to when in each 12 month period they occurred. Roughly 50% @ 4.5%, then 25% @4.75%, then 17% @ 5% and 8% @ 5.25%. This 'only' gives '4.71%' over the 12 months to Feb.

For the year earlier there were only two rates: 4.75% until August -50%- and 4.50% until Feb 2006 - another 50%. This averages to 4.63%

In each case the RPI figures for February take the change in price levels - comparable to the interest-rate on the savings held for the previous 12 months

So savers (where they have strict BOE tracking rate) will have seen their savings rates fall even faster against the rise in prices which has occurred. In effect they would have lost all of the rise in RPI over the last 12 months

(Doesn't bear thinking about)

Of course they may play 'catch up' next year (if RPI at least does not go up!) as the series of rises - and better than BOE savings rates to be chased - feed through as they ought to.

Debt_Free_Chick

Mr_Mumble wrote: »

So, imho, taxpayers should only use deposit accounts for cashflow and emergency purposes. Non-taxpayers who utilise regular saving accounts can increase their wealth by keeping their money in the high street bank but everyone else is getting screwed!

This is why many of us on this Board refute the claim that savings - or "investments" in cash - are risk-free. They are NOT!

The risk of losing your capital is pretty much nil, but there is a risk that the value of your capital + interest (less tax) in five years time is actually less than the value of the capital today. As inflation will erode its buying power.

For those who don't get this point - imagine something that costs £5k today. Assume the price of that something increases in line with inflation and in five years time it costs £7k.

If you put £5k today into a savings account and left it for five years, you will not have £7k at that time. Because the interest (less tax) is actually less than inflation in each year.

The risk trade-off is that you could (are likely?) to get a return which does not beat inflation, with the "bonus" that you get to keep at least your capital (£5k).

moneyandmountains

Mr_Mumble wrote: »

The February RPI inflation number was: 4.6%. This is the highest recorded RPI figure since 1991 when the base rate was more than double the current 5.25%!

However, this is only the average RPI figure.

More representative would be to calculate your personal RPI figure using the government calculator, so that it fits your spending habits:
http://www.statistics.gov.uk/pic/

ctdctd

So we know the three measures of RPI - between 2.8% and 4.6%.

To beat this you need more than 4.6% worst case.
I've got 45% in cash ISA's and the rest in normal savings including 6 regular savers. Average return I am currently getting is 5.42% after tax so ahead by a nose and not a loser:-)