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Safe deposit?

Taking investment risks may not seem like a wise choice in the ?short term, but inflation can have an insidious effect on savings, says Scott Gallacher

26 March 2013

It seems almost a lifetime ago, but in the summer of 2008 savers could enjoy interest rates of over 7 per cent. Today, they’re lucky to get 2 per cent. The situation is made even worse by inflation – the cost of living has gone up by about 15 per cent in the past five years.

There appears to be no end in sight for one group in particular: the pensioners who avoided investment risk and relied on savings stored safely in the bank.

Those people might feel that although they have been very prudent, they are unlucky in seeing their returns decimated. But perhaps that’s not true at all. Were they always, without knowing it, taking a huge risk?

First, spending the interest means the capital will never increase and (if rates stay the same) the same income will be generated year in, year out. With inevitable inflation, they must either cut back on their spendi...

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