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Hurray, inflation is reported to be down to 2% *source BBC

03/02/2014

london night view Big Ben London Eye

 

Well, what does this really mean to you?

 

This means that the value of your money sitting idle in your bank account lowers by 2% equivalent per annum as you can buy less things for the same amount of money.

 

Here is a very rough but real example:

A loaf of bread today is say £1

1 year from today, this new low inflation figure suggests, that same loaf of bread will cost £1.02

 

If you have any savings and you were one of the very lucky individuals to have found a very high interest savings account (let’s use for example a staggering 3% interest rate for your savings) then this savings account is finally making you a 1% profit.

Let’s assume you have £30,000 in your savings.

Inflation/cost of living increasing at only 2% means for you to just keep the same standard of living and buy same things you would need your savings to grow to £30,600 in the next year just to keep up with inflation. This is assuming that the inflation of only one month (December 2013) is going to stay for the whole year. Consider the real picture, since 1989 the average annual inflation is 2.8%. 2013 annual average is 2.5% and annual average in UK over the last 5 years is actually 3.06%.

The underlying problem is that most of us will still have savings in accounts that are not beating inflation, which is not ideal. The majority of standard UK savings accounts are giving you only 0.25% interest. Meaning the example £30,000 of your savings are likely to bring your savings balance only to £30,075 in total by next year. Making you only £75 per annum!

In real terms this means you lose money as the inflation and cost of goods has increased more than the interest gained to the tune of £525 in that first year of ‘saving’ alone.

Hmmm.... Does a savings account still look like a good choice after looking at it from a realistic life point?

 

So, what is better?

We are strong believers that property and owning property is.

This wise asset backed investment choice is also preferred by a good number of millionaires in “The Times rich list” as well as the everyday saver wishing to make a return on their savings.

Here is why:

(using the same assumptions as above but investing your money in property rather than a low return savings or bank account)

The current average annual UK property value growth for all years since 1952 is 8.1% *source Nationwide

Just by assuming the very simplest form of property investment, buying a property outright in cash, without any benefit of taking out a mortgage and boosting your income even further, this is how you could potentially gain over the next 10 years:

Buying 1 property:

£30,000 @ average 8.1% per annum growth over 10 years results in your estimated property value being £65,369.96 in 10 years.

Profit £35,369.96

And this is assuming you keep your property EMPTY for the whole 10 years and gain no rental return at all.

Your Capital Pot Total        

£65,369.96

 

Average Value of money after 10 years with assumption of average annual inflation being 3.06% like it was for the last 5 years in the UK

£40,552.97

 

Average Property Capital Growth at 8.1% per annum since records started in 1952 (*source Nationwide)

 

The best Savings Bond we could find today is 3% interest rate locking your money in for 3 years, NOT guaranteed (*source Moneysupermarket)

Best Savings Account we could find gives 1.6% interest rate with limit to savings at £1mil (*source Moneysupermarket)

A Cash ISA was found just under the savings account interest at 1.5% per annum

 

 

 

       

 

 

Property

Bonds @ 3%

Best Savings Acc we could find @ 1.6%

Bank Acc @ 0.25%

Average annual inflation UK over last 5 years is 3.06% per annum

Enter price now

£30,000.00

£30,000.00

£30,000.00

£30,000.00

£30,000.00

Year 1

£32,430.00

£30,900.00

£30,480.00

£30,075.00

£30,918.00

Year 2

£35,056.83

£31,827.00

£30,967.68

£30,150.19

£31,864.09

Year 3

£37,896.43

£32,781.81

£31,463.16

£30,225.56

£32,839.13

Year 4

£40,966.04

£33,765.26

£31,966.57

£30,301.13

£33,844.01

Year 5

£44,284.29

£34,778.22

£32,478.04

£30,376.88

£34,879.64

Year 6

£47,871.32

£35,821.57

£32,997.69

£30,452.82

£35,946.95

Year 7

£51,748.90

£36,896.22

£33,525.65

£30,528.95

£37,046.93

Year 8

£55,940.56

£38,003.10

£34,062.06

£30,605.28

£38,180.57

Year 9

£60,471.74

£39,143.20

£34,607.05

£30,681.79

£39,348.89

Year 10

£65,369.96

£40,317.49

£35,160.77

£30,758.49

£40,552.97

 

       

The inflation adjusted

value of your money

           

***comparisons and assumption used in the table 1 above based on research conducted in January 2014

 

Buying a BOND:

£30,000 in a Bond @ 3% for 10 years adding the interest into the savings to compound and get higher return, results in £40,317.49

NOTE: To get 3% interest rate you need to lock in your money for a minimum of 3 years and buy a BOND which is not 100% guaranteed.

Profit £10,317.49

Your Capital Pot Total        

£40,317.49

(not accounting for any taxes that apply, just comparing Gross)

Average Value of money 10 year (with assumption of average annual inflation being 3.06% like it was for the last 5 years in the UK)

£40,552.97

Your future purchasing balance estimate  = -£235.48

 

Leaving money in High Interest Savings Account:

(absolutely highest rate we could find is from Kent Reliance and is 1.60% per annum. All the other accounts have restrictions, maximum deposits being low and a lot of restrictions on withdrawal) link: http://www.moneysupermarket.com/savings/search/results/?goal=SAV_EASYACCESS&wom=true

£30,000 in the best savings account @ 1.6% for 10 years adding the interest into the savings to compound and get higher return, results in £35,160.77

Profit £5,160.77

Your Capital Pot Total        

£35,160.77

(not accounting for any taxes that apply, just comparing Gross)

Average Value of money 10 year (with assumption of average annual inflation being 3.06% like it was for the last 5 years in the UK)

£40,552.97

Your future purchasing balance estimate  = -£5,392.20

 

Leaving money in your Current Account:

(majority of UK High Street Banks are giving 0.1% if anything, so we are being generous here assuming 0.25%. Of course this is all under current assumptions of everything remaining the same including inflation and interest rates)

£30,000 in your Current Account @ 0.25% pa for 10 years adding the interest into the savings to compound and get higher return, results in £30,758.49

Profit £758.49

Your Capital Pot Total        

£30,758.49

(not accounting for any taxes that apply, just comparing Gross)

Average Value of money 10 year (with assumption of average annual inflation being 3.06% like it was for the last 5 years in the UK)

£40,552.97

Your future purchasing balance estimate  = -£9,794.48

 

The Property Comparison:

(Using the average Property Capital Growth at 8.1% per annum since records started in 1952 (*source Nationwide))

£30,000 in a property bought outright for cash @ 8.1% p.a. for 10 years adding the interest annually, results in £65,369.96

Profit £35,369.96

Your Capital Pot Total        

£65,369.96

(not accounting for any taxes that apply, just comparing Gross)

Average Value of money 10 year (with assumption of average annual inflation being 3.06% like it was for the last 5 years in the UK)

£40,552.97

Your future purchasing balance estimate =  £24.816.99

 

So, what would you choose from the above?

Ohhh, let’s just throw into the equation the average rental returns to our property income.

and also the potential of “gearing” (using mortgages to control higher value of property with your cash pot)

and our unrivalled search and selection in acquiring properties at best prices in the first place.

Result : The returns can increase dramatically to over £200,000!

 

Think about it for yourself, as it is your life and your money after all.

Let us know what would you prefer and how you could imagine your future with what you currently have.

If you want to just barely keep up with inflation, get a savings account (if you find a great one and are lucky).

If you want to make significantly more and profit from an inflation beating investment speak to Earnest Knight today.

Our Consultants and Portfolio Managers are here to do their utmost to try and assist you, so please do not hesitate to either

 

CALL:            0208 6109 472 or

EMAIL:           enquiries@earnestknight.com

 

Register with Earnest Knight here

or simply CONTACT US DIRECT:

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Freephone 0800 3689 317
Email enquiries@earnestknight.com

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