‘Look after the pennies and the pounds will take care of themselves’ has been a mantra which I have long lived by, but is this really the case?
2011 has been a rather busy year for me so far. A wedding to plan and a house move has meant that there hasn’t been a weekend which hasn’t been spent planning or packing, or my least favourite activity, looking at budgets and ways to save for the aforementioned.
Despite figures released this week which demonstrated inflation had slightly dropped in October to 5%, down from 5.2% the previous month, rates still remain way above the Bank of England’s target of 2%. And although there has been a fall in the price of food due to supermarkets’ ‘price wars’, and moves by MPs to urge the government to cap increases in the price of petrol, this figure doesn’t look like it’s going to drop dramatically anytime soon.
This prolonged period of high inflation has meant that those people who want to save and look after their pennies are struggling to make their money work for them.
According to the Moneyfacts financial information service, there is currently no standard savings account which allows people to make sure their savings keep up with inflation, after tax is taken into account. The past year has seen the number of savings accounts that beat inflation for basic-rate taxpayers drop from 91 to none, leaving savers like me in a bit of a tricky situation.
Moneyfacts say a basic-rate taxpayer would now need to earn 6.5% interest on their savings to keep pace with inflation. But with the average savings account paying a pitiful 1.1%, things don’t look good.
Yet HSBC research suggests things were very different during previous inflation peaks. When the rate hit 5.9% in 1991 savers were still getting 9.7%, on average.
Fast forward to today and the amount UK savers have put away has soared, up from £360bn in 1991 to £1trillion now. However, while ¬savers pocketed £34.6bn in interest 20 years ago, record low rates mean today they will earn just £11.4bn this year.
There’s lots of advice out there on how to try and beat inflation; various bonds and index-linked saving schemes, but I’m thinking I should maybe take a different approach this year.
Hide cash under the mattress or simply go out and spend it (I’ve heard the cost of air travel is pretty good at the moment) are options.
However, after a recent trip to Birmingham’s Jewellery Quarter I was shocked to learn the price of gold.
Recent research from insurance provider Esure has suggested that many Brits over the past year have invested in gold but not in the bank; not surprising given the above stats.
The research revealed one in ten people in the UK has more money in gold than cash savings, while 38% surveyed believed investing in gold was a better option than putting their hard-earned cash into a savings account.
And if you look at how the price of gold has soared over the past decade, you can see why people are taking an interest in this precious metal. The price of gold has risen by 300% in the last ten years, which is why many see investment in gold as a way of beating the rising cost of living.
Only time will tell if the banks respond and start offering more competitive saving options, but in the meantime I quite like the idea of this gold business. And, considering Rewired Towers is based in the infamous JQ, I won’t have to splash out on fuel to get there!