1.63 % before tax to beat inflation

RobStaffs

Is how much you need to earn to according to an article on This is Money. Higher rate tax payers need to earn 2.17% . Not many accounts paying this for a year fix never mind easy access

jimjames

I get 5%, easily beats inflation. Can't beat current accounts

Glen_Clark

How can anyone take the Governments inflation statistics seriously when they exclude housing costs (whilst including the cost of the latest electronic gizmos that are bound to fall in price before they go out of fashion)?

bowlhead99

RobStaffs wrote: »

Is how much you need to earn to according to an article on This is Money. Higher rate tax payers need to earn 2.17% .

Any of these kind of articles are always flawed. That's not how much you need to earn looking at any accounts that are available now. That's how much you needed to earn over the past year. Inflation is a historic measure. There is no indication, expectation or government target that says that 1.3% after tax will be enough to keep pace with inflation looking forward from now.

Obviously everyone's personal inflation rate might be far removed from the consumer prices index because nobody literally buys the 'average' basket of consumer goods and services each month, and people do have other significant expenses outside the scope of CPI (such as housing as Glen Clark mentions).

Not many accounts paying this for a year fix never mind easy access

Cash savings accounts, especially instant access, have never really been appropriate for protecting wealth against the ravages of inflation. Whether inflation is 1.3% and your savings rate is under 2.17% before high rate tax, or inflation is 5% and savings rate is below 8.33% before high rate tax, you can't do it. From time to time, possibly. Long term, probably not.

If you don't want to take any investment risk, and instead simply deposit it with a bank demanding that they give it you back at any time in full and fully insured, they are not going to be able to go out, invest it for a commercial return, pay their costs of infrastructure and overheads, make profits, and give it you back intact PLUS full inflation on top. Only marketing activities by competitors will push a bank to want to do that.

From time to time you might equal or beat inflation in some cases, and the promotional high-interest current accounts that have been around for the last few years would have beaten inflation after tax (on limited amounts of deposits). In other years, banks will promote ISAs with high returns instead - again, for limited periods on limited amounts - but it is hardly a surprise to hear that basic savings accounts are not earning you as much after tax as the lng term price changes on goods and services. What are you actually doing to 'earn' an inflation beating return if you just give a bank your cash to hold for you overnight?

Glen_Clark

bowlhead99 wrote: »

Any of these kind of articles are always flawed. That's not how much you need to earn looking at any accounts that are available now. That's how much you needed to earn over the past year. Inflation is a historic measure. There is no indication, expectation or government target that says that 1.3% after tax will be enough to keep pace with inflation looking forward from now.

Obviously everyone's personal inflation rate might be far removed from the consumer prices index because nobody literally buys the 'average' basket of consumer goods and services each month, and people do have other significant expenses outside the scope of CPI (such as housing as Glen Clark mentions).
Cash savings accounts, especially instant access, have never really been appropriate for protecting wealth against the ravages of inflation. Whether inflation is 1.3% and your savings rate is under 2.17% before high rate tax, or inflation is 5% and savings rate is below 8.33% before high rate tax, you can't do it. From time to time, possibly. Long term, probably not.

If you don't want to take any investment risk, and instead simply deposit it with a bank demanding that they give it you back at any time in full and fully insured, they are not going to be able to go out, invest it for a commercial return, pay their costs of infrastructure and overheads, make profits, and give it you back intact PLUS full inflation on top. Only marketing activities by competitors will push a bank to want to do that.

From time to time you might equal or beat inflation in some cases, and the promotional high-interest current accounts that have been around for the last few years would have beaten inflation after tax (on limited amounts of deposits). In other years, banks will promote ISAs with high returns instead - again, for limited periods on limited amounts - but it is hardly a surprise to hear that basic savings accounts are not earning you as much after tax as the lng term price changes on goods and services. What are you actually doing to 'earn' an inflation beating return if you just give a bank your cash to hold for you overnight?

Excellent post as usual. It shouldn't be to much to expect your savings to be worth as much when you draw it out as it was when you paid it in, but in reality it is. Inflation is the stealthiest stealth tax of all, which the Government targets take as much as it can without it going as far as this.. :eek: http://www.amazon.co.uk/When-Money-Dies-nightmare-Hyper-Inflation/dp/1906964440

2010

Don`t forget it`s PERSONAL inflation that counts not fiddled government ones.

kidmugsy

Glen_Clark wrote: »

How can anyone take the Governments inflation statistics seriously when they exclude housing costs …

Put otherwise: How can anyone take the Governments inflation statistics seriously when the CPI was introduced as the official measure by Mr Brown? Say no more. Nudge, nudge; wink, wink.

Linton

kidmugsy wrote: »

Put otherwise: How can anyone take the Governments inflation statistics seriously when the CPI was introduced as the official measure by Mr Brown? Say no more. Nudge, nudge; wink, wink.

As I keep detailed records and have done for the past 15 years I can confirm that CPI is a far more accurate measure of real living costs that RPI. As usual opinions based on political prejudice are likely to be wrong.

FLAPJACK

It looks as though Lloyds Banking Group are about to slash saving rates again (Moneywise has an article about this today).

I think reading between the lines the 5% current accounts will be a target soon (as they have already been nibbled at)....ISA accounts are being hit too.

So what do you do if you are a pensioner living off your savings?

The tactic now is really seems be to get you to spend your savings... as you are getting very little in return for having them....and eventually you will be withdrawing your final sum you have in savings.

At this stage you will be living just off your pension and as you have now no savings you can apply for benefits from the government....unless of course they get you on the ("Deprecation of Assetts" card) thereby becoming a burden on the state....instead of using your own money aquired from interest on your savings to live on.

It really makes so much sense doesn't it?

Plus as from next year anyone with a pension pot (who can already see that it's probably not going to provide a living pension) may and can do exactly the same...spend spend spend...then claim benefits.


Talking of taking Government Stats seriously....isn't it amazing how in the past 6 months or so how the unemployment figures have dropped, and probably will continue to do so until May15.

Obviously this time of year there will be seasonal jobs....but in the main how many of the "unseasonal" jobs are real jobs? Zero hour contracts....many part time posts....many non-career posts..all these can be used to bring the unemployment figure down.

As too can the number of people who are sanctioned each month....if your JSA has been stopped you count as not claiming.... therefore you can be included in the rising number of people not claiming.....the figures will look then as if all these non-claimants are working.

kidmugsy

Linton wrote: »

As I keep detailed records and have done for the past 15 years I can confirm that CPI is a far more accurate measure of real living costs that RPI. As usual opinions based on political prejudice are likely to be wrong.

Of your real living costs; perhaps not mine.

Anyway, Brown didn't introduce it because it might prove more accurate, he introduced it because he expected it to be lower. He justified it, at least in part, by allusion to its use on the continent. Since he planned to keep us out of the Euro, that's an explanation that made little sense.

bowlhead99

If the economy is in a hole, the last thing we want people doing is putting all their money away for a rainy day; spending, investment and growth is more useful. So, when the country as a whole is actually having a rainy day, stashing money in a savings account is less incentivised than in the boom times. Lower rates keep money out of the bank vaults and out providing spending and investing power.

If you have planned to just live off a rainy day cash savings pile through retirement, and now realise that won't work... you might consider living off an investment fund to be a more future proof plan, and think about what best place for your cash really is. For the long term, it's unlikely to be a savings account, whether ISA version or not.

The problem for some people is that high interest and high inflation (together with house price growth) in some eras had left some people thinking that they can grow their assets for a long and healthy retirement simply by leaving most of it in cash, and watch the numbers go up nicely and it would all be fine.

Now inflation is lower and the headline interest rates are lower, it's more clear that the numbers are not going up for free. So to keep up with your neighbours you need to have a portion of your assets in investments, like they do. UK and global investment returns over the last couple of decades have been OK in real terms.