National Savings Slashes Interest Rates

NATIONAL SAVINGS - It has today been announced that National Saving has slashed its interest rates and Premium Bond prizes dealing yet another blow to the nation’s savers who have already suffered due to continuously low interest rates. 

Founder and MD of Sourced Capital, Stephen Moss, commented:

"Yet another blow for those trying their best to accumulate any kind of savings pot and perhaps the final nail in the coffin for the vast array of savings based products available to the consumer, as more and more are opting to move away from these traditional options due to the pitiful returns they now provide.

While extremely low interest rates are all well and good when it comes to stimulating spending to boost the economy, they have created a very tough landscape for those that are unable to tuck away enough money to spend in the first place.

The Bank of England must do something to encourage more people to accumulate a stable financial foundation for their future and while we certainly don’t want a return to the double-digit rates of the eighties and early nineties, many will be hoping for a boost via an increase in interest rates in next month’s budget.”

ABC Note: The value (purchasing power) of money diminishes over time. This is called the Rule of 72. The rule of 70 and the rule of 72 give rough estimates of the number of years it would take for a certain variable to double. When using the rule of 70, the number 70 is used in the calculation. Likewise, when using the rule of 72, the number 72 is used in the calculation. It can also show when your money has halved in value (purchasing power) due to inflation.

To accumulate money in the long term you need to invest in real assets, like land or property or a portfolio of shares. Gold is an excellent store of value in times of high inflation, it can be held as physical investment or you can invest in gold shares.  'Invest your money' in land said author Mark Twain, 'they are not making any more of it'.

Whilst money accrued interest the actual principal diminishes in value. If there is 2% inflation in Germany and 3% in the UK, the purchasing power of your money will shrink faster in the UK. This is why hot money flows from one place to another and countries raise or lower interest rates to attract inward investment. Cash however is more liquid that land which might not sell in a recession.

Deflation causes prices to fall, but that means people defer purchases as a good might be cheaper in future. Modest inflation reduces debt over time. However very high inflation can destroy a currencies value altogether.

ABC Comment, have your say below: