# Deposits and Inflation - by Sir Ivor



## Brendan Burgess (2 Sep 2001)

<!--EZCODE ITALIC START-->_ Originally posted by Sir Ivor_<!--EZCODE ITALIC END-->

Quote:
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 "At the time of writing, a typical deposit rate is about 3% a year or 2.5% after DIRT. Inflation is running at about 7% a year. That means that a saver who reinvests his deposit interest is still losing about 4.5% a year in real terms. Between 2000 and 2001, it is likely that a depositor will have lost 10% of his lump sum."
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This quote from the "Book", already looking a bit dated, throws ups some interesting conundra.

Is it Irish inflation we should be worrying about or Euro inflation? 

Consider the different local inflation rates in Wyoming and Florida (I have no idea what they are but I understand that they can be quite different between States over the short term). 

Should an American's view on long term real returns vary from State to State?

In the short term the Irish Depositor has lost against inflation but in that same period most equity investors have lost even more.

It is the long term comparison which matters. Nobody thinks long term investments should be on retail deposit. But Government Bonds, provided charges are low enough, that is a different matter.  

The fact is that hardy City men are everyday investing huge sums in Government Bonds over 20 years at around 5% per annum and the market in index gilts suggests that these same hardy men think inflation will be 2% per annum over this period. Similarly for the French OATS (alas poor Sea Pigeon) market, the equivalent to the sterling gilts market.

Over the long term Fixed Interest investments should outpace inflation in a rational market - provided charges are kept down. 

Edited by: Sir Ivor at: 8/29/01 3:11:26 pm


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