Scared of exceeding PSA

surreysaver

80% of something is better than 100% of nothing as stated by others. 
Having to pay tax on savings interest means its something else to consider, now its worth filling up ISA allowances and my offset mortgage first.
The other issue is HMRC don't provide a breakdown of bank accounts that they've used to calculate your savings interest (I'm sure they did originally when banks first started reporting to them?), so its difficult to figure out if their calculations are correct 

zagfles

John464 said:

Bigwheels1111 said:

I can’t understand it either.
2 years ago 100k would have given 1k, now 6.2k interest.
Even after tax I would be jumping for joy.

Sorry to burst your bubble but what matters is the Real rate of interest.
Net interest rate minus inflation
So even at 6.2% interest you could be losing more than you were losing last year

Indeed. If you get 6% interest when inflation is 8% your investment is losing value. Strange how people don't seem to understand this. £1 this year is not worth as much as £1 last year. 

Getting taxed on an investment which isn't increasing in value is effectively a wealth tax, not an income tax. That I guess is why some people object to paying tax. In the same way as they might complain about other stealth taxes which use inflation to hide them, for instance freezing tax thresholds etc.

Bigwheels1111

John464 said:

Bigwheels1111 said:

I can’t understand it either.
2 years ago 100k would have given 1k, now 6.2k interest.
Even after tax I would be jumping for joy.

Sorry to burst your bubble but what matters is the Real rate of interest.
Net interest rate minus inflation
So even at 6.2% interest you could be losing more than you were losing last year

I understand that, but last year I had £1500 of interest on my capital.
This year over 13k on my capital.
Now I have an income of £250 a week and last year £30.
£250 is better, that’s all that matters to me.

zagfles

Bigwheels1111 said:

John464 said:

Bigwheels1111 said:

I can’t understand it either.
2 years ago 100k would have given 1k, now 6.2k interest.
Even after tax I would be jumping for joy.

Sorry to burst your bubble but what matters is the Real rate of interest.
Net interest rate minus inflation
So even at 6.2% interest you could be losing more than you were losing last year

I understand that, but last year I had £1500 of interest on my capital.
This year over 13k on my capital.
Now I have an income of £250 a week and last year £30.
£250 is better, that’s all that matters to me.

Really? That's all that matters to you, not the loss in value of your capital?

Why don't you invest in Turkey, they've just raised their base rate to 30%. You'd really be jumping for joy!!

Of course with inflation at about 60% your capital would go down in value, but that doesn't matter to you it seems 

Bigwheels1111

zagfles said:

Bigwheels1111 said:

John464 said:

Bigwheels1111 said:

I can’t understand it either.
2 years ago 100k would have given 1k, now 6.2k interest.
Even after tax I would be jumping for joy.

Sorry to burst your bubble but what matters is the Real rate of interest.
Net interest rate minus inflation
So even at 6.2% interest you could be losing more than you were losing last year

I understand that, but last year I had £1500 of interest on my capital.
This year over 13k on my capital.
Now I have an income of £250 a week and last year £30.
£250 is better, that’s all that matters to me.

Really? That's all that matters to you, not the loss in value of your capital?

Why don't you invest in Turkey, they've just raised their base rate to 30%. You'd really be jumping for joy!!

Of course with inflation at about 60% your capital would go down in value, but that doesn't matter to you it seems 

Correct that’s all that matters in my world.

I now have enough savings to provide me with a better income than I have ever had in my life until I’m 80+ and senile. If all goes to plan I will still have my capital.

When I get my pension I will be rich I tell you rich.
I have been on carers allowance for 10 year, caring for my disabled best friend 24/7
I’m entitled to nothing else, so have survived on under 4k a year.
This year I will have an income of 17k.
It will continue for 7 more year and I will still have the capital plus any more I have saved.
what more than financial security no debt, food, clothing, car, housing and heat could I want.
A 6.4 Blonde would not go amiss.
I hope you are as happy with your life as I am with mine.

BooJewels

I am totally on board with @Bigwheels1111 - my circumstances are very similar.  Whilst I fully grasp the concept that money loses buying power over time - it always has, it's not a new concept and if there's 2% difference between inflation and the interest I earn on my money - then I'm not going to lose any sleep over it personally.  We all have a personal inflation and I think mine is perhaps less than others, due to what I spend money on - and I don't have a mortgage, rent or any debt to service.

Likewise, a couple of years ago I was living off benefits whilst I nursed my husband to his death and I also lost everyone else older than me in the family - both parents, my MIL and two aunts.  I've pretty much been a full time executor for the last 3 years.  The upshot is that I have money in the 'bank' now (very little of it is actually anywhere near a bank).  It's not money that I personally earned and getting churlish about it buying me less over time than it started out doing would be wholly inappropriate.  It comes with enormous guilt and responsibility.

The fact that it currently earns enough to live on without dipping into the capital, is a real bonus that wouldn't have begun to feature when I first had to start making plans and doing sums with my late husband's pension pot funds.  I'm already way ahead of those predictions and well up on my projection for this year.

As @Bigwheels1111 said - I own my own home, I'm warm, I'm well fed and comfortable.  Having gone hungry in the past, knowing that I never will again is worth much more to my peace of mind than the theoretical deduction in buying power of my capital.  As I said to someone else here previously - if I end up in difficulty, the rest of the population will be in real trouble long before me.  Would I give it back to have the people I love back again - you bet your sweet bippy that I'd give up every penny.  Will I mind if I need to pay tax on my interest - not one bit!

masonic

I'm an advocate of total return, but in the short term few if any made a positive real return. Going forward, savings stand a chance of doing so. I'll stick with my equities, having several decades investment horizon, but inflation has already done its damage to us all.

zagfles

Well this thread's taken a bit of a philosophical turn

I too am happy, grateful, struggled through hard times in the past, etc. Thanks for asking. I have a 6.4 blond but I suspect he's not your type 

Anyway, sorry, back to the point. Because it's important, regardless of your philosophy, outlook on life, current financial status, history, health, relationship status or political beliefs etc.

The decrease in the value of your capital caused by inflation is equally as important as the interest rate you earn on it.

If inflation is 10% and you earn 10% net interest, you are no better off than if inflation was 0% and you earn zero interest.

It might seem like you are. Getting £10k interest on £100k capital might seem better than getting nothing. But it's an illusion. 

If you spend your £10k interest instead of reinvesting it, you're effectively spending your capital. It's exactly like spending £10k of your capital in the zero interest/zero inflation scenario. 

In one case, you spend the 10% interest and your capital is eroded 10% by inflation. 

In the other case you spend 10% of your capital. 

In both cases your capital is eroded exactly the same and you have spent exactly the same.

This isn't a philosphical point. It doesn't matter where the money came from, whether you feel grateful for having it, whether you live a happy life etc. It's just maths.

However, the taxman is with you. He sees the £10k interest as something you gain, something you should feel grateful for, something up for grabs. Even though the interest is only maintaining real value. I think I now understand how he gets away with it

Thumbs_Up

What is life? Life is money, without no money their is no life. I have given this subject some scholarly thought. So how will I beat the bogeyman aka inflation? To my thinking its a 3-way game bit like the hand game rock paper scissors. To explain this I’ll have to dumb this down a bit and quote my 2nd favorite film title regarding wealth preservation -

Good: Compounding interest and In pensions we trust.

Bad: Labour's  chancellor of the exchequer. Some hyped up fund managers.

Ugly: Inflation.

So, 3 years ago I had £477,000, today £500,0000, this magical trick is done by compounding. I will be told (correctly) my cash has lost it’s true value due to inflation. But for me personally has it? 

3 years ago 477k wouldn’t buy me a 3 bedroom semi-detached house, today it will. Next year 477k will buy me a 4 bedroom detached house. My way of thinking I have gained £23,000 and kick the bogeyman into touch. Good morning.

 

SonOfPearl

Interesting discussion. There are two figures that really matter to me. 1. my annual expenditure and 2. my annual income, which is entirely from savings interest*. As interest rates and inflation have risen substantially over recent times, my annual expenditure has increased but my income from my savings interest has increased much more. This is because I am fortunate to have savings that are more than 20 times my annual expenditure. 

I understand that the real interest rate is the nominal interest rate less inflation, but due to my low living costs and significant savings I am definitely benefiting from higher interest rates despite even higher inflation. 

* I also have investments, but they are growth funds, not income funds.