I’m sure I’m not the only one that makes the mistake of keeping all their free cash in their current account, but did you know that doing this can actually be losing you money?
Okay, no need to panic your bank isn’t stealing from you but in relative terms, your money is decreasing in value when you leave it sitting in your current account. Over the past 10 years, inflation (red line) has more than doubled the performance of cash (green line). This means that despite any growth a cash holding might have received during this time, in real terms the value of this saving would be halved.
So let’s say you have £5 in your account and this will currently buy you one drink. Over 10 years the bank adds interest and this £5 grows to £10. On the surface it would appear that this will buy you an extra drink.
However during this same period inflation will have increased the cost of the drinks. Now each drink costs you £15. Therefore the real value of your initial £5 has fallen and despite any growth you will now no longer be able to afford any drinks.
Meanwhile, the FTSE 100 has much more volatile returns (at times would therefore have resulted in an investment loss). However over the long term not only is the trend for growth, despite the fluctuations, but the growth is also vastly in excess of inflation and as such ensures that the real value of the money grows.
If invested with the FTSE 100, that £10 has the potential to become £5 or £25 due to the fluctuations present within the market.
Interested and want to find out more? Come in for a consultation or give us a call on 01752 207070 and we’ll discuss and help you discover what options are available for you.
DISCLAIMER: Seeking professional and personalized advice is always recommended. Your financial needs and circumstances are completely individual to you and you should treat them as such by seeking advice from an investment professional. Independent financial advisers have the ability to recommend products from all areas of the financial market and will provide you with a clear guide to establishing everything you need to make a smart investment that suits you.