Savings Eroded By Record Inflation Rates

Cash rich Singaporeans averse to risky alternatives are in an unhappy spot of having their savings eroded by inflation, said The Business Times.

Not only is inflation clearly on the rise - it hit a 26-years high of 6.6% in January - banks are further cutting their already miserable deposit rates.

I still recall, in year 2006, 12-months Fixed Deposit rates were as high as 3% (or more) but has fallen to 1.2% currently (Mar 2008). With inflation estimation at 5% per year, how does our savings in the bank ever match inflation. This goes to say, the same amount of money kept in the bank, with interest, will only see you getting poorer and poorer. Let me re-highlight some assumption,
- Current value of savings : $10,000
- Value after 1yr (5% Inflation) : $9,500
- Value after 7% GST (Upon spending) : $8,835

Does it still make any sense to stay conservative and leave money in the bank, or to be a high risk taker in equity investment? Please note, there are investments out there that provides Capital Protection and Guaranteed Returns. Look at what gives you more than what will be taken from you (abv illustration).