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Why you are losing money in the building society

Building society and other similar deposit-based accounts are always held to be safe havens for your money – “I can’t lose any of my money and I will always earn some interest each year (however small!)”.

Building society and other similar deposit-based accounts are always held to be safe havens for your money – “I can’t lose any of my money and I will always earn some interest each year (however small!)”.

This is no longer true and your money will definitely value in the building society.

Why?

Because inflation now far outstrips what little interest you are earning so the purchasing power of your building society money is going down – prices are rising quicker than the interest you are earning.

The Consumer Price Index now stands at 3.2% - just to keep pace with inflation you will have to earn interest of 4% each year if you are a basic rate taxpayer and a whopping 5.33% gross if you are a higher rate taxpayer.

The Retail Prices Index now stands at 5% and there is not a building society account in the country paying 5% even before tax and even if you tie your money up for 5 years!

Ah but what about ISAs?

They are even worse than normal building society accounts despite the fact that there is no tax to pay on the interest – the very best easy access ISA account for balances of £5,100 or more is paying 2.75% and if you are able and prepared to tie your money up for 5 years the best account is paying a paltry 4.2% which is higher than the CPI admittedly but still way below RPI.

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