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Are My Cash Savings At Risk?

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I keep alot of cash savings in the bank, I keep hearing about inflation ripping through peoples savings etc.

What exactly does this mean? In 8 years I have only ever put money in to this account, I have never withdrawn from it - ever.

If inflation goes up, don't interest rates go up as well and thus increasing the amount of interest I am paid each month?

Sorry to be a div, but can someone explain. :blink:

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For one thing, even if interest rates were as high as inflation rates, you'll get taxed on the interest! So with 20% inflation and 20% interest rates, you'll be losing 8% of your purchasing power every year if you pay 40% tax.

This whole inflation thing is really a brilliant scam by the governments of the world: tax people more while making them think they're better off.

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I keep alot of cash savings in the bank, I keep hearing about inflation ripping through peoples savings etc.

What exactly does this mean? In 8 years I have only ever put money in to this account, I have never withdrawn from it - ever.

If inflation goes up, don't interest rates go up as well and thus increasing the amount of interest I am paid each month?

Sorry to be a div, but can someone explain. :blink:

What could you buy for £5 20 years ago?

What would £5 buy you today?

That's inflation

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Yea if prices go up faster than the interest rate on your bank account. Then your power to purchase goods is diminished.

Eg

Lets say a car today cost £5000

You have £5000 in your bank

@ 4% interest rates

In five years you will have £6083

But the car might cost £6500

You would have lost the power to buy the car.

High inflation erodes the value of cash

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Yea if prices go up faster than the interest rate on your bank account. Then your power to purchase goods is diminished.

Eg

Lets say a car today cost £5000

You have £5000 in your bank

@ 4% interest rates

In five years you will have £6083

But the car might cost £6500

You would have lost the power to buy the car.

High inflation erodes the value of cash

Shit, now what ? :(

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I keep alot of cash savings in the bank, I keep hearing about inflation ripping through peoples savings etc.

What exactly does this mean? In 8 years I have only ever put money in to this account, I have never withdrawn from it - ever.

If inflation goes up, don't interest rates go up as well and thus increasing the amount of interest I am paid each month?

Sorry to be a div, but can someone explain. :blink:

The problem is especially apparent when people place a large amount in the bank, then withdraw the interest to supplement their income. For example a person considering STR'ing, currently receives a tax free, implied return on their equity in their property. In a way, that return they're withdrawing each month by living in the property. But because their money is also invested in a leveraged asset that grows in excess of inflation, they can both have the benefit of withdrawing the return (by living in the property) and the capital growing in value.

So put 100k in a 300k house, it returns you 6k each year in tax free interest saved by not borrowing the full 300k. The property grows, in 10 years (for example) you can sell & withdraw the new balance of your capital, which would roughly be 390k if the property grew at 7% per year to 590k and you didn't pay down any of the mortgage. So in effect, you have received a return on your money and prevented it from losing any value as well.

Contrast that with someone who puts 100k in the bank & withdraws the interest each month to help fund their rent for example. In 10 years, their 100k will still be 100k and due to HPI, it would barely qualify as a deposit on a equvalent property now. It has therefore lost a major part of its value through inflation. In my exmple, it was 33% of the properties value, after 10 years it's 17% of the properties value.

But even if you reinvested the interest after tax over the 10 years. At 3% after tax, the 100k would only grow to 134k. It would still only be 22.7% of the value of the property in the example & therefore has lost a thrid of it's value despite doing everything right by re-investing the interest.

Yes you say you're topping yours up with savings, but you could also be saving by paying down that mortgage.

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The problem is especially apparent when people place a large amount in the bank, then withdraw the interest to supplement their income. For example a person considering STR'ing, currently receives a tax free, implied return on their equity in their property. In a way, that return they're withdrawing each month by living in the property. But because their money is also invested in a leveraged asset that grows in excess of inflation, they can both have the benefit of withdrawing the return (by living in the property) and the capital growing in value.

So put 100k in a 300k house, it returns you 6k each year in tax free interest saved by not borrowing the full 300k. The property grows, in 10 years (for example) you can sell & withdraw the new balance of your capital, which would roughly be 390k if the property grew at 7% per year to 590k and you didn't pay down any of the mortgage. So in effect, you have received a return on your money and prevented it from losing any value as well.

Contrast that with someone who puts 100k in the bank & withdraws the interest each month to help fund their rent for example. In 10 years, their 100k will still be 100k and due to HPI, it would barely qualify as a deposit on a equvalent property now. It has therefore lost a major part of its value through inflation. In my exmple, it was 33% of the properties value, after 10 years it's 17% of the properties value.

But even if you reinvested the interest after tax over the 10 years. At 3% after tax, the 100k would only grow to 134k. It would still only be 22.7% of the value of the property in the example & therefore has lost a thrid of it's value despite doing everything right by re-investing the interest.

Yes you say you're topping yours up with savings, but you could also be saving by paying down that mortgage.

TTRTT. I agree with you that a savings account in not the best way to protect your money from inflation.

However, you make huge assumptions. I remember when I bought my first house. They offered me an endowment mortgage on the basis that the stock market outperformed inflation for I don't know how many years previously. It was the risky option. I declined and that turned out to be the right decision.

The problem is that equity growth however you may like it is non-linear. Sometimes it grows well above inflation and sometimes well below.

There is no way to fully protect yourself against inflation and that's why governments prefer it in small doses.

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invest in art work

Not much point in having excess cash. It gives you security but at a premium. Invest cash wisely and you should beat inflation.

I've bought a few pieces of quality art (Henry Moore and a few others) and fully expect them to give good returns in the very long term. Not forgetting of course how much pleasure I get from viewing them today.

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The problem is especially apparent when people place a large amount in the bank, then withdraw the interest to supplement their income. For example a person considering STR'ing, currently receives a tax free, implied return on their equity in their property. In a way, that return they're withdrawing each month by living in the property. But because their money is also invested in a leveraged asset that grows in excess of inflation, they can both have the benefit of withdrawing the return (by living in the property) and the capital growing in value.

So put 100k in a 300k house, it returns you 6k each year in tax free interest saved by not borrowing the full 300k. The property grows, in 10 years (for example) you can sell & withdraw the new balance of your capital, which would roughly be 390k if the property grew at 7% per year to 590k and you didn't pay down any of the mortgage. So in effect, you have received a return on your money and prevented it from losing any value as well.

Contrast that with someone who puts 100k in the bank & withdraws the interest each month to help fund their rent for example. In 10 years, their 100k will still be 100k and due to HPI, it would barely qualify as a deposit on a equvalent property now. It has therefore lost a major part of its value through inflation. In my exmple, it was 33% of the properties value, after 10 years it's 17% of the properties value.

But even if you reinvested the interest after tax over the 10 years. At 3% after tax, the 100k would only grow to 134k. It would still only be 22.7% of the value of the property in the example & therefore has lost a thrid of it's value despite doing everything right by re-investing the interest.

Yes you say you're topping yours up with savings, but you could also be saving by paying down that mortgage.

ha ha ha! Yeah, WHATEVER TTRTR!

He is of course PRETENDING that housing is an appreciating asset, which of course it is not. However, if you ignore his transparent plug for housing in the guise of advice, then the central crux of what he is saying is true:

You must invest in assets that give a return above the rate of inflation. Ordinarily even a lowly risk-free savings account should be able to maintain and increase by a little the real value of your money (i.e. interest is higher than inflation), but in this day and age of lying politicians and swishing liquidity (i.e. lots of new money entering the system) the CPI inflation figure is a load of rubbish. I reckon real inflation stands at around 8% or so...therefore you will need investments that give you a return in excess of 8% to simply maintain your purchasing power. You cannot do this with savings accounts.

Your purchasing power is being eroded by inflation.

...you should also be rewarded for the risk and the time-value of lending your money to someone, so you ideally want at least a few percent more than this.

Not so easy!

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Different markets have boom and bust periods, its all a matter of timing if you want to permanantly beat inflation....

If you want to reduce your risk, you should have a well diversified portfolio, a basket of companies, currencies and property, with todays property, you would do well to stear clear....

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you should also be rewarded for the risk and the time-value of lending your money to someone, so you ideally want at least a few percent more than this.

And then you want that 8+% _after_ tax, which means at least about 12% before tax.

Ah, the joys of fiat currency.

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Like it or not campers, housing has grown at 7 to 8% per year for the last hundred + years, so it is quite feasable and likely that it will continue to do so.

Your being here as scared bears is testament to the effect of ignoring this reality.

?????? Any chance of supporting these figures? And what about general inflation during this period?

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Like it or not campers, housing has grown at 7 to 8% per year for the last hundred + years, so it is quite feasable and likely that it will continue to do so.

Your being here as scared bears is testament to the effect of ignoring this reality.

No, he's just doing his usual 'you bunch of losers' routine, because, great business brain that he is, he doesn't have a clue what he's on about..

Funny, coming from someone who smells of herring and is a self confessed parasite rachman sheep botherer.

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Where are the other goldbugs?? Must be in the investment threads...

As I was concerned for the safety of my savings, I converted 10% of them into gold middle of last year. I did this to try and protect my savings as a hedge against inflation.

Needless to say, my 10% in gold is now a slightly higher percentage of my total savings. :D

I don't know what to advise, beyond what somebody has already posted. Don't put all your eggs in one basket, although i'd steer clear of the housing one for the moment, maybe it has been 7-8% in the last hundred years on average, but if you buy into a peak, it may take you a bigger portion than you realise on the next 100 years to get back to the 7-8% average.

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Not much point in having excess cash. It gives you security but at a premium. Invest cash wisely and you should beat inflation.

I've bought a few pieces of quality art (Henry Moore and a few others) and fully expect them to give good returns in the very long term. Not forgetting of course how much pleasure I get from viewing them today.

Often good scrap value too and a commodity play. Just don't keep them in the garden.

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  • 335 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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