MSE News: Inflation rise means all savings are 'losing' accounts

JamesU · 14 December 2010 at 7:13PM

Linton wrote: »

This is the problem with the headline RPI figure. it is fine for continuous changes but misleading for step changes.

Linton, agree completely. Case in point, just prior to deflation RPI was 216 in Nov 08, stayed at lower RPI levels for the best part of a year, and then returned to RPI=216 in the months of Oct 09 and Nov 09. The %RPI inflation reported journalistically as high over the last year, particularly Mar 10 onwards, was still in reference to these abnormally low RPI values from "a deflationary hangover." However, Nov 09 was the last month for this, as RPI Nov 08 = RPI Oct 09 = RPI Nov 09 = 216. RPI started to increase from Dec 09 onwards (Mar/Apr 2010 mth/mth change being the greatest rise at 0.95%). Going forwards, watching the %RPI in the coming months should now be more meaningful than it has been over the last year. But it may be difficult to differentiate VAT increases from those of inflationary increases due to weak sterling.

JamesU

StevieJ · 14 December 2010 at 7:17PM

JamesU wrote: »

I thought the 15% VAT was increased back to 17.5% at the beginning of Jan 2010. If so, unless I have the timing of %RPI calculations wrong, the start of the impact of the VAT back at 17.5% on inflation would not be seen until the Jan 2011 figures which are published in Feb 2011.

Similarly, the effect of a VAT increase to 20% on RPI inflation will not be seen until Feb 2012 if the 20% VAT rate is introduced at the beginning Jan 2011.

JamesU

That reminds me of that NS&I index linked debate

basically provided the Vat increase occurs within your named period it will have an effect. You are not comparing to what the inflation rate was 12 months ago you are measuring the increase in a cumulative index.

JamesU · 14 December 2010 at 7:59PM

StevieJ wrote: »

That reminds me of that NS&I index linked debate basically provided the Vat increase occurs within your named period it will have an effect. You are not comparing to what the inflation rate was 12 months ago you are measuring the increase in a cumulative index.

Exactly. But ILCs not available at present and these days it is easier to do this technically and timing-wise trading RBPI (%RPI or 3.9%) or the newer RBS offering (1.3x %RPI). 0.75%-1.0% buy/sell spread to watch for though. But quarterly updating of %RPI rather than annually with the ILCs.

http://forums.moneysavingexpert.com/showthread.php?p=38115966#post38115966

JamesU

[Deleted User] · 14 December 2010 at 8:13PM

pqrdef wrote:

Fine, if you don't mind spending all your capital and you only want the interest to maintain the spending power.

Conventionally though people have expected to maintain the real value of their capital and get an income from it on top of that.

Yes. My point exactly is that for very many savers lower than inflation interest rates aren't a big deal....provided it doesn't go on for too long. Think things through and do your sums before panicking and transferring to investments if it's something you're not comfortable with.

Linton wrote: »

You have risks however you play it - either that the savings return isnt enough to fund your desired lifestyle, or that investments do not go as well as you would like.

I'm not trying to get an income from the interest on my savings. I simply have a lump sum that I plan to spend over the next 20 years. If interest rates are high enough to ensure that my money will buy me as much in 20 years time as it did when I first put it in the bank then everything in my little world is rosy!

So for me and others in a similar situation the **only** risk with savings is that interest rates are lower than inflation....in the long term. And it's hardly a risk as provided you keep an eye on things you are in a position to move your money at short notice if and when you reach a point where your savings would buy less than when you first put it in the bank.

You say that the risk with investment is that they may not go as well as you like. Lets expand on this. Your investment could be virtually wiped out overnight. It *might* recover if you leave it in long enough. Or it might not. Unlike savings, if things do go badly you stand to loose a lot (perhaps even most of your capital) if you decide to get your money back and put it elsewhere. If you sit tight you might find that you don't even get back your capital let alone earn enough to beat inflation. Those risks (no matter how small) are a step too far for me. I don't care how many IFA's try to convince me that my money's safe. If they really believed that they'd offer guarantees.

But anyway, my point is that for many risk-adverse savers there's no need to panic. If you are in a position to sit tight and look at the big picture you might well find that over the long term your money will buy a lot more than when you first put it in the bank. You may well be able to weather a year or two of below inflation rate interest thanks to previous years of good interest.

rdtrdt · 14 December 2010 at 9:39PM

Deleted_User wrote: »

If you are in a position to sit tight and look at the big picture you might well find that over the long term your money will buy a lot more than when you first put it in the bank.

After tax? Are you being serious?

JamesU · 14 December 2010 at 9:41PM

pqrdef wrote: »

And then there's a miracle in Feb 2011 when inflation suddenly comes down from 5% to 0.

But with real ONS RPI data do bear in mind that the % RPI is on target next year to be a minimum of 4% in January 2011 and February 2011.:(

(in Jan 2011: 226.8/218.0 equiv to 4.03% +/- Dec 2010 RPI contribution; in February 2011: 226.8/217.9 equiv to 4.08% +/- Dec 2010 + Jan 2011 RPI contributions).

JamesU

smeagold · 14 December 2010 at 10:05PM

Anyone that leaves their money in a bank getting paid less than 3% in their losings account is a mug imo. grow some balls and buy an asset that appreciates with inflation like a commodity/energy etf shares in mining, agro companies, pharma, metals anything where your savings at least have a chance of keeping up with inflation. do nothing, keep your sad money in a 'safe' bank account (LOL) then accept the fact your gonna get poorer and quit complaining

Loughton_Monkey · 14 December 2010 at 10:13PM

Who remembers the 1970's?

If you had £1,000 under your mattress 1st January 1970, then to celebrate on 31st December 1979, it would have been worth £292.73?

I'm guessing, but I suspect if you used the best interest rates going, you would still have not managed to get £292.73 to grow to anything greater than about £700.

Compared to that, I don't find the current situation 'too bad', but I just fear it might get worse.

dunstonh · 14 December 2010 at 10:43PM

I have savings that I'm using to subsidise my income over the next 20 years or so until I retire. So low interest rates are obviously not good for me.

savings have rarely been the best option to use for income provision irrespective of interest rates. You are just guaranteeing a real terms loss.

[Deleted User] · 14 December 2010 at 10:55PM

rdtrdt wrote: »

After tax? Are you being serious?

Of course!

This thread is in relation to a news article entitled "MSE News: Inflation rise means all savings are 'losing' accounts "

The reason that it's news is because previously it was possible to find accounts that offered interest rates that matched and even beat inflation.

Anyone that was able to take advantage of these accounts and increase their savings over and above the rate of inflation can weather a period of below-inflation-interest-rates and still manage to stay ahead of inflation in the long term.

If low interest rates continue for a long period of time those profits will eventually be eaten away. But at this time you may well still be winning - do the sums.

MSE News: Inflation rise means all savings are 'losing' accounts

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