It is vitally important if you have a new ISA

Depending on the index you use, inflation is somewhere between 4-6% in the UK, so even if you receive the best ISA rate you will not be able to beat inflation, but hopefully this will change with time.

So it is vitally important if you have a new ISA that you take advantage of your tax free savings allowance. Interest will increase and when it does, you can benefit later by moving older ISA’s with lower interest rates to another provider at higher rates.

The hidden killer is inflation of your power to spend both today and in the future. Inflation is big barrier to someone accumulating wealth despite savings increasing monthly and on the year but the absolute cash on hand will be worth less in only 1, 5, or 40 years than what it is today, if inflation continues at its pace.

The ISA rates presently need to be at least 6% to be higher than inflation on the RPI index or 4% if the CPI index is used. These rates are no longer with us even on money put away for the long term, so what can be done.

At the end of the day it must be understood that savings are only a form of delayed spending. The money is to provide a nest egg for ourselves for what will inevitably happen with all our eventualities. Or can be used to purchase items needed like cars, funerals, mortgages, healthcare or even for children.

Nevertheless the reason we save money is not important, each person has their own reasons. The important factor is that the money will eventually be spent short or long term by you or someone it is given to. Ultimately part of the money, no matter how it is spent, will find its way back to the government.

There are many reasons why ISA or savings rate are so low at the moment. Government banks cannot be seen as or even perceived as giving higher ISA rates than banks that are not state owned.

As explained before savings is no more than delayed spending and the government needs that money to be spent now in order to buoy the economy and get it back to where it was prior to 2008. So the interest rates will remain low so that the money will be spent easier since they cannot earn a high interest rate.


Leave a Reply




You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>