Is Inflation really Disguised as a Negative Interest Rate?

bery_451

Hi,

Lets say I saved £100 in the bank. Inflation is 3% a year. So that means 3% of £100 is £3 so first year after saving I lose 3% down to £97, then next year 3% off £97 and so on? Because cost of goods/services are rising 3% annually to compensate the inflated weak £GBP pound? So a £100 plane ticket this year will cost £103 next year and so on?

So the $64,000 ultimate question is for example how much will my £64,000 savings will be worth in 20 years time? Will it be worth £6400 buying power!?

If I put my savings into a 3% interest paying account then that means I be break-even with my savings right?

Interest rates needs to be above inflation rate otherwise things are not looking good.

ryanm8655

Are you asking whether you should take into account inflation when deciding what to do with your money?

Then yes, if the return on your investment is less than inflation then your money is effectively worth less in real terms. But there is also the opportunity cost to take into account, which is essentially what else you could have done with the money. Standard savings accounts are usually poor places to put your money as the interest rates are always poor, if you're looking for a decent return.

For info your £100 would effectively be worth £97.09 in a years time if average annual inflation was 3%, you're dividing by 1.03.

Galloglass

Is this not a question for the investment forum? Coin clipping and other forms of money debasement have been going on for centuries. Governments are full of rogues. 

Luckily over in the investment forum you'll find other rogues called IFAs who will help you deal with the first set. 

Plenty of online calculators to help answer that £64000 question.

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php