Below is an excerpt from MoneyWeek Mar 22, 2013 / issue 632 by John Stepek about the Cypriot banking crisis. This excerpt is provided under UK fair use.
Many of us in the UK and other EU countries believe that what's happened in Cyprus couldn’t happen to them, but for many it already has:
"Let’s say that you – a British saver – had put £50,000 of savings in a bank account in Cyprus at the start of 2008. At the going exchange rate back then (around 74p to the euro), you’d have received around €67,600. Over the last few years, Cypriot bank accounts have paid a typical rate of around 4%-5% a year on deposits, according to Credit Suisse. So by now, you’d have €84,240 (assuming a 4.5% a year average interest rate). Let’s knock off 6.75% for the bank levy (which looks unlikely to happen now, in any case). That gives us €78,554. Convert that back to sterling at the current exchange rate of around 85p to a euro, and you’re left with £66,770. Compare that to keeping £50,000 in a UK bank account since the start of 2008. At an average interest rate of 3.12% (a figure boosted by the fact that savings rates were still quite high in 2008), you’d now have just £58,317. In other words, even given the banking levy, you’d have been £8,453 richer now by banking in Cyprus. Let’s throw in the impact of inflation. Since 2008, the UK retail prices index has risen by 17.2%. So for your £50,000 to retain its purchasing power, it would have to have grown to £58,579 by now. So only the Cypriot option would have delivered you a ‘real’ (post-inflation) return. By saving in Britain, you’ve actually lost £262-worth of purchasing power…"
Certainly shows how inflation and fractional reserve banking slip under most people's radar.
that is a good observation
