We put in the hard work, tighten our belts, don’t buy the phone we actually want, take fewer holidays. All to build up our savings. We keep them in the bank hoping someday it’ll help us do things we really want to… travel the world… buy a new house… pay for the kids’ university…
Our savings account is not meant to be a windfall but it’s at least meant to give us a sense of security. Especially when it’s an account that pays decent interest. But there’s something secretly dragging the value of our savings down.
Inflation is the rate at which prices rise year on year. Milk will cost more in 5 years time and your dream home is going to cost a whole lot more. However, according to a recent analysis* of the standard UK savings accounts by Moneyfacts.co.uk, 99% of accounts pay an interest rate that’s a lot less than the rate of inflation.
Let’s show this with some numbers: The interest rate in an average savings account is 1% p.a. But the price of things you want to buy with those savings is rising at a rate of 2.5% p.a. When you put the two together, what are you left with? MINUS 1.5% p.a. Which means your savings will be worth less in terms of relative value.
So even when you see your savings account balance rising little by little with interest, it’s not actually adding value to savings.
Shouldn’t your bank help you make your savings inflation proof?
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