MARTIN LEWIS ON INFLATION, INTEREST RATES AND SAVING

It is generally believed that, down to the affects of the deteriorating economy and falling inflation, savers may have to alter their perception of saving and what to do about it.

The noted financial expert Martin Lewis  has commented that “interest cant be considered without looking at inflation too.”

It is possible to use mathematics to predict how inflation and savings could progress in the oncoming months. Although they are liable to change.

It is felt that in July of 2009, top savings may be 6.5%, while inflation (RPI) might reach 5.0%. You could save £1000 for twelve months prior to basic tax, that could give you £1,052.

A basket of goods which could previously be yours for £1000, may now be available for £1050 due to a change in inflation. Your spending power had only risen by a value of £2. The REAL INTEREST could be 0.20%.

It is thought that today, top savings have made it to 3.5%, with inflation (RPI) at 0.1%. You could save £1000 for a twelve month period and you will be left with £1,028. Goods which would have been available for £1000 may rise to £1,001 because of inflation. Your power has therefore risen by £27 with a REAL interest value of 2.7%.

Yet,what does the future hold for inflation and savings? What could happen next?

A possible outcome could see top savings reach 1.5% with inflation (RPI) at 2.0%. If you save £1000 for twelve months you would have £1.012, following basic rate tax. A basket of goods that are available for £1000 may ave fallen to £980 as a result of deflation. Ironically, this may have risen your sending power by £32, with a real interest of 3.2%.

It is hard for people to believe that inflation is really worth so little. The RPI can be 0.1% as the CPI ate, not counting mortgages, is worth only 3%. Personal inflation rates can result in people with high rates can see their money taking a downturn and not doing as well as first appears.

Those folk getting by on what they have saved feel  that, in today’s economic climate, that they should not touch that capital and keep it for `a rainy day`. However, Martin Lewis recommends that they have to get out of that mind set if they want low interest rates. Martin Lewis advises that it is possible to send that capital without reducing spending power. In fact, he recommends that people should do just that.

The public does not have to accept a change in their day to day lives. Especially as it could be potentially harmful, such as doing without food or avoid paying heating bills to save their capital. However, for some folk, that can feel like the only option.

An unfortunate side affect of living in an deflationary low interest world.