inflation

justme111

so many of you prognosticate inflation. Hoping to put some money aside for a deposite I'd like to protect the money. How can I do it in our current situation? I was reading people advised keeping them in Swiss franks, is it reasonable? How can it be done?

Aegis

A simple way to beat inflation is to purchase some index linked savings certificates from NS&I. They're guaranteed to pay interest a certain level above RPI, and are tax free, so you know for certain that inflation won't be an issue for you.

Not exactly sure why saving in Swiss Francs would be a good way to beat inflation, as the currency fluctuations would be more than enough to have to worry about!

jon3001

Moving money into hard currencies such as CHF, EUR, JPY is done as a hedge against currency depreciation rather than inflation per se. Are you concerned about growth in the money supply (government 'printing' money) or instrinsic price growth caused by supply/demand factors?

There's a consensus that Sterling is set to become even weaker. We've supposed to have had 15 years of uninterrupted growth yet the country is effectively bankrupt with some of the highest taxes in the developed world and record budget deficits. Further interest rates cuts are expect this year which would bring Sterling under further pressure.

Sterling has already fallen about 10% over the past 6 months vs reserve currencies such as EUR and CHF.

If you anticipate further such problems ahead then exposure to hard currencies and their goverments' bonds could be useful.

For longer-term investment and as a further hedge against price inflation you can consider exposure to hard assets such as precious metals and commodity futures. The price of crude oil nearly doubled over the past 12 months and people are experiencing double-digit price rises at the petrol pumps and on energy bills.

norm_diploom

jon3001 wrote: »

Moving money into hard currencies such as CHF, EUR, JPY is done as a hedge against currency depreciation rather than inflation per se. Are you concerned about growth in the money supply (government 'printing' money) or instrinsic price growth caused by supply/demand factors?

There's a consensus that Sterling is set to become even weaker. We've supposed to have had 15 years of uninterrupted growth yet the country is effectively bankrupt with some of the highest taxes in the developed world and record budget deficits. Further interest rates cuts are expect this year which would bring Sterling under further pressure.

Sterling has already fallen about 10% over the past 6 months vs reserve currencies such as EUR and CHF.

If you anticipate further such problems ahead then exposure to hard currencies and their goverments' bonds could be useful.

For longer-term investment and as a further hedge against price inflation you can consider exposure to hard assets such as precious metals and commodity futures. The price of crude oil nearly doubled over the past 12 months and people are experiencing double-digit price rises at the petrol pumps and on energy bills.

A really interesting reply which gives much food for thought - thank you!

justme111

tx for replies. if you have a spare minute could you please give me instruction how to open an account if franks or euro. I wonder if I can just call to my Halifax and ask them to convert the money into another currency. I understand the point about bonds but I may want to buy this year.

jon3001

Bank of Scotland (part of HBOS) do Euro deposit accounts:
http://www.bankofscotland-international.com/savings/euro_accounts.asp

Another provider is Citibank
http://www.citibank.co.uk/personal/banking/international/deposits.htm?merchant=citi

justme111

jon3001 wrote: »

Bank of Scotland (part of HBOS) do Euro deposit accounts:
http://www.bankofscotland-international.com/savings/euro_accounts.asp

Another provider is Citibank
http://www.citibank.co.uk/personal/banking/international/deposits.htm?merchant=citi

:T txxxxxxxxx

CLAPTON

do be careful
whatever the consensus maybe about the fall in the value of sterling compared to euro we may wish to consider

- you lose money when you exchange it and you will need to do two exchanges... so check carefully about charges before committing yourself

- interest rates on europe are lower than in UK

-sterling has fallen 4% against the euro since June so maybe the time to buy is past.

jon3001

CLAPTON wrote: »

sterling has fallen 4% against the euro since June

How did you get this figure?

http://www.exchange-rates.org/history/EUR/GBP/G/240
http://www.exchange-rates.org/history/EUR/GBP/T

Sterling was trading around 1.48 back in June. Today it's around 1.33. Around a 10% decline.

CLAPTON wrote: »

so maybe the time to buy is past.

Maybe. That's the gamble of course.

Lavendyr

If the Euro is currently strong against the pound, now may not be the best time to buy, OP. The time to buy is when the Euro is weakest against the pound. If you think the pound will continue to slide relative to the Euro, by all means buy, but as Clapton says, it may be that you've already missed the boat there.

jon3001

justme111 wrote: »

I understand the point about bonds but I may want to buy this year.

Nothing stopping you getting exposure to bonds this year if you want to. Fixed interest bonds do poorly in inflationary environments so you'd probably be looking at index-linked bonds via a fund or ETF.

E.g. iShares do an index-linked Euro bond ETF:
http://www.ishares.eu/fund/fund_performance.do?fundId=157750

Such funds appreciated rapidly in Sterling terms as GBP declined:
http://uk.finance.yahoo.com/q/bc?s=IBCI.L&t=6m&l=on&z=m&q=l&c=

Obviously you'd be assuming both the forex risk and exposure to bond markets. But it depends on what you're looking for.