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DICKDASTARDLY

Inflation: How Does That Affect Deposit Savings

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This is a very simple explanation -

Imagine you have £100.

Right now you can i) buy a new TV for your £100 or

ii) put it in a bank at (say) 10% interest.

Imagine too that inflation is 15%.

After 1 year you will have £110 pounds in your bank account. £100 + 10% interest.

Also after 1 year inflation will affect the price of the TV set. It will now be £100 +15% = £115.

What this means is that if you want to buy a TV you should buy now because you have the money.

In 1 year you will be £5 short because your savings have fallen behind inflation.

Again, this is very simplified but I hope it explains it somewhat.

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Thats why the official inflation measures are a sham.

They don't neccessarily reflect the inflation in price of goods which you might want to spend your money on.

The real interest rate (IR minus inflation rate) is usually only a % or two.

You need to look at how you store your savings relative to what you want to buy with them.

If you put your savings in the bank at 5% (less taxes) then you want the thing you want to use your savings for (in future) to inflate at less than your gross rate (after taxes).

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So arent we all just pissing intio the wind trying to save ?

Yep.

Pound for the pound the cash you save has less purchasing power in the future.

Thats if your rate is 5%,

you should be able to find something nearer double figures though, in which case you money will have more purchasing power. Unless you believe inflation to be higher than 10%.

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So arent we all just pissing intio the wind trying to save ?

If you want to protect your money and not get had by inflation then you need your return on investment to be better than the REAL inflation rate.... not the inflation measures. CPI being the bag of crap that it is.

But if housing is going to crash relative to cash and not just inflation then saving is still ok, but not neccessarily making best use of your deposit funds.

Currently, IMHO, there are no savings accounts that offer gross returns higher better than the real inflation we are all facing.... I'd try looking elsewhere if you want to maximise your returns.

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This is a very simple explanation -

A real world example would be

You could buy a TV for £100 now – but if you were to put it in the bank for a year you could go down to sainsburys and buy a even bigger one than you could have got a year ago for the same money.

You go home and tell your friends –but they have all released the equity from their homes – bought a 42-inch plasma and traded in their ford focus for a BMW

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How would inflation affect deposit savings. ??? Please advise, Im a bear of very little brain.

You previous posts don't seem to support you being a bear!

Have you forgotten which username you are signing in under?

btp

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So arent we all just pissing intio the wind trying to save ?

NO!

Everyone has their own "personal inflation"; i.e. the price inflation of the things they themselves are looking to buy. If your savings are all going to be spent on a house then the only kind of price inflation you need to care about is house price inflation.

If you are planning to buy 500 DVD players with your savings, then you should be looking at the government's inflation figures.

frugalista

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  • 301 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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