I am in the UK. I have some savings in my bank account, and over the years I am beginning to wonder, especially that prices are rising (or perhaps the Pound Sterling worth is falling), is it really a good idea to save, or must I invest this money to keep up with inflationCan a smart person help. Thank you.
how much is a LOT? some emergency money should be in cash - invest the rest to BEAT (not keep up with) inflation
Money in the bank will lose buying power. This is because the rate of inflation is greater than the rate of interest which banks pay. You may want to keep enough money in your bank account to carry you through a year in case you lose your job (if you're working. You didn't give your age.) Then speak to an investment broker about very stable investments and about money market funds. Money markets pay slightly more than bank accounts. However an investment broker's loyalty is first to himself, secondly to his employer, and thirdly to you. I suggest you get a book named Investing for Dummies, Third Edition [Paperback] by Eric Tyson. Please don't be offended by the name. For Dummies is a publishing company. Eric Tyson has written quite a number of books dealing with Finance. Google Eric Tyson. For Dummies contracts with authors who are experts in their field, and also have the ability to put information into plain English. This book won't make you an expert. However, it will give you the background to ask questions and understand the answers. I also suggest you google How to select an investment broker. Remember that the higher the financial reward the higher the risk. The lower the financial reward the lower the risk.
Its pretty much pointless to leave lots of money in a bank account. Banks don't keep your money in there. Instead, they either loan it out or invest it. Guess what interest rate the banks are getting on your money? I guarantee you its more than 12%. What interest rate do they give to their customers? 0% to 2%. I only recommend leaving about 6 months of income in there for emergency purposes. With banks, you can immediately take cash out at anytime. In the US, the inflation rate is between 3% to 4%. In order to keep up with inflation or beat it, you need to invest your money. I recommend people invest in mutual funds. Mutual funds are long term investments and should be part of your investment portfolio. There's thousands of mutual funds to choose from for all types of investors from investors who are willing to take a little risk to investors willing to take lots of risk. Anyway, here is a free education that banks don't want you to know. Its called the Rule of 72. Its a formula that tells you how many years your money will double given the interest rate. It is calculated by taking 72 and divide it by the interest rate and it will tell you how many years your money will double. With the 3% interest, it will take 24 (72 divided by 3) years for your money to double. With 6% interest, it will take 12 years for your money to double. With 12% interest, it will take 6 years for your money to double. I went to college and there was a very small section in one of my textbooks that went over this. My college professor told me not to worry about it since it was not going to be on the test. So I ignored it and forgot about it until I got a job in a financial company. You are probably wondering where you can get 6% or 12% return on your money. As I hinted before, you do that by investing in mutual funds.
