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The spectre of inflation
A potentially more serious threat to your bank account is the damage that inflation can cause. Rising prices could mean that the real return on your savings is very small. For instance, if your account pays 8% but inflation is 6%, you are only making 2% in real terms. You then have to take tax into account – for an investor in the highest tax bracket, this will result in a negative real return. If inflation is higher than 6%, as it is at the moment, the effect on your real returns will be even worse. A reduction in interest rates would also cut into the returns on your savings.
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Labels: Investment Tips