With Savings Rates Lower Than Inflation, Should I Bother Saving?
Inflation numbers are discouraging, with the CPI running at 3.
2% and the RPI (the one that people actually feel in most cases) around 4.
5%.
With super low interest rates being paid on savings, money you tuck away is losing value by the day.
Calculations by The Daily Telegraph showed that those saving £1,000 in a typical instant access account, assuming inflation stays where it is, will lose between £200 and £217 in value over five years, depending on their tax rates.
It's no wonder that savings rates have dropped sharply, from nearly 8% in 2009 to around 3.
2% in 2010.
If you compare savings accounts, you'll find that it's nearly impossible to earn a real rate of return on savings these days.
Even basic rate taxpayers have to lock away their money for three years in a Post Office bond to earn enough to beat inflation.
What's a financially savvy person to do? While you can't cut out the effects of inflation, you can cut out the spectre of tax by investing in a cash ISA.
The best ISAs are currently paying around 2.
8%, and you have to lock your money away for 4 years in a fixed rate ISA to break 4%.
But as tax breaks go, you can't beat it.
You can currently save up to £5,340 in a cash ISA, during the 2011 to 2012 tax year, which began on 6th April 2011.
If you have credit card debts, personal loans, or mortgages, putting any extra money toward paying off debt may be your best bet right now in terms of return on investment.
Unless you have a 0% credit card or a rock-bottom mortgage, now is a good time to pay down those debts, especially if you are currently only paying the minimum repayments - you will pay a lot more interest if you do this and it will take you much longer to clear your debt.
Basically speaking, your credit card, loan or mortgage rate will be much higher than that earned on most savings accounts at the moment.
Another "savings" option is investing in home improvements.
But, before you sink money into a new en suite bathroom or a loft conversion, talk to an estate agent who knows your local market and can tell you if your property will be more attractive to prospective buyers once you make the improvements.
And if you do take the plunge take care to choose a reputable builder to do the work.
2% and the RPI (the one that people actually feel in most cases) around 4.
5%.
With super low interest rates being paid on savings, money you tuck away is losing value by the day.
Calculations by The Daily Telegraph showed that those saving £1,000 in a typical instant access account, assuming inflation stays where it is, will lose between £200 and £217 in value over five years, depending on their tax rates.
It's no wonder that savings rates have dropped sharply, from nearly 8% in 2009 to around 3.
2% in 2010.
If you compare savings accounts, you'll find that it's nearly impossible to earn a real rate of return on savings these days.
Even basic rate taxpayers have to lock away their money for three years in a Post Office bond to earn enough to beat inflation.
What's a financially savvy person to do? While you can't cut out the effects of inflation, you can cut out the spectre of tax by investing in a cash ISA.
The best ISAs are currently paying around 2.
8%, and you have to lock your money away for 4 years in a fixed rate ISA to break 4%.
But as tax breaks go, you can't beat it.
You can currently save up to £5,340 in a cash ISA, during the 2011 to 2012 tax year, which began on 6th April 2011.
If you have credit card debts, personal loans, or mortgages, putting any extra money toward paying off debt may be your best bet right now in terms of return on investment.
Unless you have a 0% credit card or a rock-bottom mortgage, now is a good time to pay down those debts, especially if you are currently only paying the minimum repayments - you will pay a lot more interest if you do this and it will take you much longer to clear your debt.
Basically speaking, your credit card, loan or mortgage rate will be much higher than that earned on most savings accounts at the moment.
Another "savings" option is investing in home improvements.
But, before you sink money into a new en suite bathroom or a loft conversion, talk to an estate agent who knows your local market and can tell you if your property will be more attractive to prospective buyers once you make the improvements.
And if you do take the plunge take care to choose a reputable builder to do the work.
Source...