Why the 'real rate of return' for Savings
is so important to understand
|
|
|
Last update : July 2010
|
| One of the foundations of personal finance is to understand how interest rates affect money.
The 'real rate of return' is where inflation is taken into account when saving money. So if inflation is running at 5% per year, most goods and services will also rise by an average of 5%.
|
|
|
| However, if inflation is running at 5% a savings account will have to pay at least 5% in order to break even. So the 'real rate of return' is where the inflation rate is subtracted from the interest rate on the savings account. For example - |
- Savings account pays 8%
- Current inflation 5%
- Real rate of return = 3%
|
|
| Summary |
| Whenever you're looking at the interest rate for savings accounts it's good practice to check the current inflation rate - look for RPI on the homepage - as the 'real rate of return' is the important figure.
See also
|
|
Current Savings Deals
|
|
|
 |
|
|
|
|
|
FREE Stocks & Shares ISA Report
|
|
|
Why you must think long term with ISAs
|
|
Costs and charges - How to slash them
|
|
|
The best broker to use - and why |
|
How to build a Portfolio of different asset classes
|
|
|
More details |
|
|
|
|
|
|
Read more in the Banking & Savings section:
|
|
|
|
|
|
| Looking for something? Then search this site: |
|
|
|
|
|
|
|
|
|
