In July the official CPI inflation rate rose to 4.5%. But the RPI, which is a more complete measure of inflation as it includes mortgage interest payments, rose to 5.2%.
The challenge for Britain’s 38 million savers is to get a return on their money of at least 5.2%, and with NS&I withdrawing their index-linked savings certificates last week, that’s now harder than ever.
The deliberate policy of near-zero interest rates has redefined the definition of risk. Too many savers remain convinced that because their money is in cash and their monthly statement says £20,000 every month, they are not losing money. This is a very dangerous belief and one that is patently false.
Yes you will still have £20,000 in 5 years time but if you are only earning 3% interest you will only be able to buy £16,998 worth of goods and services. You will have lost £3,001 worth of purchasing power, or wealth, call it what you will, you are still £3,001 poorer.
So your “Risk Free” investment is not risk free. In fact it’s not even a risk, it’s a certainty. You can be certain that you will lose money.
This table shows you just how much you will lose based on how much you have saved and what percentage return you are getting.