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Personal finance


ver the past few months, I’ve spoken to a number of new clients


who are all concerned about the same issue; very poor returns on their bank savings. With record low interest rates looking like they’re here for some time to come, this is an increasingly common worry for the many people who are either living off their accumulated wealth or trying to save for the future. So what, if anything, could or should be done? The main appeal of saving with a bank is that it feels completely secure; the value of your account should never fall (although the recent events in Cyprus remind us that nothing in life is ever 100% certain!). Despite this apparent safety, however, over the longer term bank saving is actually a pretty risky investment for a different reason -


inflation. Of course, there have been times when interest rates have been much higher than now,but these periods have often coincided with bouts of higher inflation. Data going back to 1956 indicates that average building society


The key question to ask yourself then, is whether you are


comfortable to move out of cash-based savings into other forms of investment.


interest rates (net of basic rate tax) have not kept pace with inflation, lagging it by over 1.5% per annum on average over this entire period. So, although the problem may be more apparent to us today, the current


by Ian Thomas CFPCM Director, Pilot FINANCIAL PLANNING.


LOW INTEREST RATES: IS THERE A SOLUTION? O


very low nominal interest rates are really not that unusual in real terms (ie. after inflation). This has some serious implications for longer-term savers, not just now, but in the future too. If you’re aged 60 for example and using your bank interest payments to support your lifestyle, an inflation rate of just 3% per annum will cut your real spending power by almost half by the time you reach 80! The key question to ask yourself then, is whether you are comfortable to move out of cash-based savings into other forms of investment. By doing so, it’s inevitable that the nominal value of your investment will fall at certain points. For some people, this makes any form of investment a non-starter. In the longer run however, investments linked to ‘real’ assets such as company shares or property are much


leading the way in financial planning & wealth management


For more information contact Ian Thomas 01803 771 096


ian@pilotfinancialplanning.co.uk


Pilot Financial Planning is authorised & regulated by the Financial Conduct Authority. www.pilotfinancialplanning.co.uk


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