Protecting savings against inflation
Discussion
Badda said:
sidicks said:
Currently base rates are at an all time low, but are expected to increase over time - that's why 5-year ISAs can offer 3%.
They're keeping it pretty quiet though aren't they? Moneysupernarket suggests 1.75-2 is more likely for 5 years. sidicks said:
Badda said:
sidicks said:
Currently base rates are at an all time low, but are expected to increase over time - that's why 5-year ISAs can offer 3%.
They're keeping it pretty quiet though aren't they? Moneysupernarket suggests 1.75-2 is more likely for 5 years. Are the offered rates 1.75-2% or not. Where did your 3% come from?
Badda said:
So to be painfully clear...when you said it was an average of 3 (now 2) percent, with returns varying over the 5 years, with it increasing in the later years, what you actually meant was a fixed 2% over the entire term?
Is that right?
The ISA is fixed for the period. That fixed rate is linked to the expected risk-free rate that will be achieved over the term of the investment.Is that right?
Similarly, the rate for instant access ISAs will be linked to current risk free rates.
In all honesty I think you are.
The difference between base rate and SVR has altered drastically. You argued against this saying that one was a saving rate and one was a borrowing rate and that I didn't understand. I had clearly stated I was looking at the difference between the two over a period of time. The difference has widened drastically, fact.
I looked at SVR vs base rate over a ten year period and you tried to argue against it using rather dubious numbers saying you could get 3% ISAs and then edited your post, said it was a typo and that the rates would vary over the course of the ISA in accordance with the expected rate rise. We then established it was a fixed 2% return, regardless of base rates fluctuations, fact.
You know your stuff, I'm sure, but to belittle people on here for not knowing much is poor form. The way you've tried to argue your case to me, using differing numbers and bogus claims leaves a lot to be desired. It's honestly no wonder might feel they're being 'ripped off' when things are 'explained' to them in such a manner.
Anyhoo, I've said my piece and suspect this is incredibly boring for everyone now so have a nice evening.
The difference between base rate and SVR has altered drastically. You argued against this saying that one was a saving rate and one was a borrowing rate and that I didn't understand. I had clearly stated I was looking at the difference between the two over a period of time. The difference has widened drastically, fact.
I looked at SVR vs base rate over a ten year period and you tried to argue against it using rather dubious numbers saying you could get 3% ISAs and then edited your post, said it was a typo and that the rates would vary over the course of the ISA in accordance with the expected rate rise. We then established it was a fixed 2% return, regardless of base rates fluctuations, fact.
You know your stuff, I'm sure, but to belittle people on here for not knowing much is poor form. The way you've tried to argue your case to me, using differing numbers and bogus claims leaves a lot to be desired. It's honestly no wonder might feel they're being 'ripped off' when things are 'explained' to them in such a manner.
Anyhoo, I've said my piece and suspect this is incredibly boring for everyone now so have a nice evening.
Badda said:
It was a bold claim, it was a throwaway comment by the OP that's been made too much of.
The thing is banks are not borrowing at Base rate they are above that level. Not sure why the SVR for the bank I'm with per the pic you have is MUCH higher than I am on(?) strange that.
Badda said:
In all honesty I think you are.
The difference between base rate and SVR has altered drastically. You argued against this saying that one was a saving rate and one was a borrowing rate and that I didn't understand. I had clearly stated I was looking at the difference between the two over a period of time. The difference has widened drastically, fact.
I looked at SVR vs base rate over a ten year period and you tried to argue against it using rather dubious numbers saying you could get 3% ISAs and then edited your post, said it was a typo and that the rates would vary over the course of the ISA in accordance with the expected rate rise. We then established it was a fixed 2% return, regardless of base rates fluctuations, fact.
I explained that comparing long-term risky assets to short-term risk-free assets is highly misleading.The difference between base rate and SVR has altered drastically. You argued against this saying that one was a saving rate and one was a borrowing rate and that I didn't understand. I had clearly stated I was looking at the difference between the two over a period of time. The difference has widened drastically, fact.
I looked at SVR vs base rate over a ten year period and you tried to argue against it using rather dubious numbers saying you could get 3% ISAs and then edited your post, said it was a typo and that the rates would vary over the course of the ISA in accordance with the expected rate rise. We then established it was a fixed 2% return, regardless of base rates fluctuations, fact.
I also explained that the return available on Cash ISAs is linked to the underlying risk-free rate.
Hence, instant access ISAs have rates close to the current risk free rate / base rate and longer-term ISAs have rates linked to longer-term risk free rates which are currently expected to average around 2% over the 5-year period.
Which explains why an instant access ISA has a low fixed return (< 0.5%), why a 5-year ISA might have a fixed rate of 2% and why the inflation rate of 3.7% is meaningless. Hence no-one is being 'ripped off'.
Edited by sidicks on Monday 2nd October 19:52
PurpleMoonlight said:
With RPI at 3.9% and savings interest at less than 1% and royally being ripped off in the ISA, I'm losing a lot of value.
What would be the least riskiest way to protect it?
Personally, I don't save in £ any more. Anything in SIPP goes to equities and precious metals. They go up, they down but at least they are claims on real assets. The £ always goes down.What would be the least riskiest way to protect it?
Banks and government create £'s out of nothing. The government also provides low cost funding for the banks so they don't need your money. So the £ is really only good for pay-as-you go expenses, not for saving.
So the least riskiest way to protect is fundamentally to get of it!
1. Reduce any debt you have
2. Spend it
PurpleMoonlight said:
Well, I've decided to dabble in a stocks and shares ISA.
I will be using the cautious option, that is risk level two of five.
ISA unit trusts are great - you can choose sector risk appetite or simply FTSE or whatever exchange trackers. I will be using the cautious option, that is risk level two of five.
You can pay in monthly - I think some allow as low as £20pcm upwards. You can change the value you pay in at any time to stop increase or decrease within min tolerances.
If your feeling a bit risk averse you could always do a 50:50 Cash ISA : S&S ISA.
Having seen this thread referenced on another topic, thought I'd comment.
I have the same ISA as the OP had, paying 0.5%. It has a lot less in it now than it did!
The same building society pays 5% on it's current account on £2500 for the first year, then 1% afterwards.
Having held that current account for 3 months means you can open a savings account and pay in £500 each month for a year - also at 5%.
Another Building society pays 3% on £1500....used to be 5% on a larger amount, but was reduced earlier this year.
It's easy to set up the monthly minimum amounts that these two current accounts need, via standing orders between the two. Hence, requires little maintenance once you've set it up. Both current accounts have no monthly fees.
I have the same ISA as the OP had, paying 0.5%. It has a lot less in it now than it did!
The same building society pays 5% on it's current account on £2500 for the first year, then 1% afterwards.
Having held that current account for 3 months means you can open a savings account and pay in £500 each month for a year - also at 5%.
Another Building society pays 3% on £1500....used to be 5% on a larger amount, but was reduced earlier this year.
It's easy to set up the monthly minimum amounts that these two current accounts need, via standing orders between the two. Hence, requires little maintenance once you've set it up. Both current accounts have no monthly fees.
Purple,
You are in a cash product and inflation has risen. I understand your annoyance, but the base interest rate since you opened your account, has not risen. It has either remained unchanged, or about a year ago it was halved. Linking to inflation is not a feature of cash. You have had the safeguard of not losing cash, but history has shown cash almost always loses value due to inflation.
The government tried to reduce people's awareness of that, by changing from RPI to CPI, which conveniently, always seems to run at a lower percentage. There used to be index linked government stock, but I think the index linking only worked if you held for many years. They were mainly aimed at the pensions industry, with the inflation risk being carried by the government (ie. tax payers).
I have managed to achieve an average of 14.16% p.a. over the past 29 years. However to do that, you have to take a big risk with your family money and have to hope, that you at least have some ability to make the correct decisions.
To match RPI with very least risk, is probably not really possible.
As mentioned above by condor, make use of the cash 'teaser' rate accounts, although their generosity usually only extends to fairly modest account limits.
Edited by Jon39 on Wednesday 25th October 14:43
I am fortunate enough to have some index linked national savings certificates which I have rolled over since they matured some years ago. They pay RPI + 0.05% but tax free, so equivalent of over 7.5% for an additional rate taxpayer - there's nothing else risk free that comes even close, although of course, they dont actually make anything after inflation, they just dont lose...
Jon - those returns are very impressive indeed. If I could replicate that performance over just five years, I'd almost double my money and be a very happy man. I assume those returns are pre-accounting for what must be some enormous unrealised capital gains!? As and when you get time, I for one would certain appreciate some longer thoughts on that 29 year investing history and what you've learned.
Jon - those returns are very impressive indeed. If I could replicate that performance over just five years, I'd almost double my money and be a very happy man. I assume those returns are pre-accounting for what must be some enormous unrealised capital gains!? As and when you get time, I for one would certain appreciate some longer thoughts on that 29 year investing history and what you've learned.
williaa68 said:
I am fortunate enough to have some index linked national savings certificates which I have rolled over since they matured some years ago. They pay RPI + 0.05% but tax free, so equivalent of over 7.5% for an additional rate taxpayer - there's nothing else risk free that comes even close, although of course, they dont actually make anything after inflation, they just dont lose...
Jon - those returns are very impressive indeed. If I could replicate that performance over just five years, I'd almost double my money and be a very happy man. I assume those returns are pre-accounting for what must be some enormous unrealised capital gains!? As and when you get time, I for one would certain appreciate some longer thoughts on that 29 year investing history and what you've learned.
Jon - those returns are very impressive indeed. If I could replicate that performance over just five years, I'd almost double my money and be a very happy man. I assume those returns are pre-accounting for what must be some enormous unrealised capital gains!? As and when you get time, I for one would certain appreciate some longer thoughts on that 29 year investing history and what you've learned.
Thank you Andrew.
I had forgotten about the index linked NI. Can now recall them being announced, probably quite a while back. Perhaps fortunate that the terms allow 'rolled over', because they are presumably no longer available.
On your second point - the build up (I stopped new contributions) within an ISA, of course allow withdrawal at any time free of CGT. Obviously best to hold most in those.
Difficult to explain what I have gradually learnt, but perhaps a few one liners might give you some ideas to research further.
Forget that you are buying shares. Concentrate your thinking on trying to select good businesses, which hopefully can make steady future progress.
If profits steadily rise, the share prices will eventually follow.
My favourites have been very large, long established FTSE 100 international, defensive, non- cyclical. Great during downturns, and more suited to holding long-term.
Gradually build up holdings to 25 or 30 businesses, for a good spread of risk.
Once bought, just hold long-term. A proven method with almost no additional costs, and you don't want to become a slave to this activity.
When we all begin, there is the feeling that tiny companies will grow much faster. Many will, but it is almost impossible to spot the few gems.
Keep precise records. Just do a valuation at the end of every business week on a simple spreadsheet. Compare percentage growth from the beginning of each year of your overall portfolio, against the FTSE All-Share Index. If you can generally keep ahead of that Index, then you are holding good businesses. You even have help with this comparison, because that Index does not include the dividends that you will receive during each year.
Some holdings will have duff years, but you are only interested in the overall total portfolio percentage result. Interesting how often the duffers can revive later, sometimes with a new CEO.
Don't panic sell during downturns. If falling values keep you awake, this is not for you. When all those fund managers have finished panic selling (their customers shares), there should be an opportunity to add to your holdings, at attractive prices.
There you are. A few things to think about. Watch Mr Warren Buffett's interview videos on YouTube, and learn his quotes. An example to us all, and I am always amazed how he can remember every number and date. I remember one or two prices I paid years ago, but he seems to knows all of his. One of his best quotes is about the enormous rise by the Dow Index, during the 20th century. How could anyone lose, answer because they kept buying and selling.
When considering the huge UK companies, it is a mistake to think they are now so big, they must have reached their limit.
Even ignoring dividends, you can find some that have increased their value, by ten times since 1st Jan 2000.
I am still staggered by the figures. It shows just how difficult it must be, to manage businesses of such large scale properly.
Combining the businesses that I have stakes in;
Total revenue = £748,000,000,000.
Jobs provided for 2,318,689 people.
£1 million pre-tax profit earned every 12 minutes.
I have not kept a figure for the total tax these companies pay, but let's say the UK would not want to be without them.
We are even fortunate to live in a country, where we are allowed to own stakes in such enterprises.
Good luck.
Edited by Jon39 on Thursday 26th October 19:19
Gassing Station | Finance | Top of Page | What's New | My Stuff