The war on savers continues, with banks cutting deposit rates down to almost zero.
Substantial reductions in savings rates quietly introduced over the holidays have left consumers with accounts paying out as little as 0.1 per cent on deposits at a time of economic uncertainty when many households are planning to put more money aside.
The cut in savings rates will particularly affect pensioners who depend on interest payments to supplement their savings for retirement, financial advisers fear. "It’s bleak for all savers, and pensioners in particular,” said Ben Yearsley, an investment manager with advisory firm Hargreaves Lansdown. "We’ve reached a point where savings rates are lower than the rate of inflation.”
This week, Abbey, Lloyds TSB, Halifax, Barclays, NatWest, Alliance & Leicester, Nationwide and Royal Bank of Scotland slashed rates on variable savings accounts by 1 percentage point or more.
Banks now paying massively negative interest rates; government bonds yields are similarly negative; and the UK equity market is down by a third. There is simply nowhere for savers to go without making massive financial losses. It is now pointless to try to save; the government will acquire all private sector savings through withholding tax and inflation.
This is classic New Labour; whenever those jokers find themselves facing a problem, their solution is always to replace the initial difficultiy with an even bigger problem. After a few years of this kind of mad financial policies, the UK will be left with millions of poverty-trapped pensioners. The feckless and prudent alike - everyone will be dependent upon the state.
17 comments:
This is what I don't get about interest rate cuts. Surely the interest lost by depositors more than compensates for the interest saved by borrowers? So the net effect on spending in the economy is virtually zero.
So interest rate cuts are really a tool of social policy to transfer wealth from savers to borrowers without explicitly saying so.
Why do we have 'base rates' set by the BoE anyway? Why not let the market decide what rates should be? They do anyway in many instances - you pay 15% on a credit card, 5% on a mortgage, x over base for business lending, and savings can be anywhere from zero to 4-5%. Why not go the whole hog and abolish the concept?
"There is simply nowhere for savers to go without making massive financial losses."
Index-linked Savings Certificates?
1.there is no such animal as new labour...just old labour in sheaps clothing...
2.the labour party hates savers...period...
oh yeah...an free markets...an property ownership...an civil liberties...an cars...an private pensions...an choice...
3. please can we have a real opposition...soon...
Sobers makes two excellent points, both of which I have been trying to make for ages.
There is no more need for the BoE to set interest rates than there is for a politically appointed committee to decide exchange rates, quotas, tarrifs, minimum or maximum wages or anything else.
New Labour hates savers...
Because we have reserves and New Labour hasn't.
And we can move our money abroad.
Expect exchange controls soon.
One time at Stansted they had sniffer dogs to check passengers for bank notes.
And a box to post a form to voluntarily declare cash exports to HMRC. I don't know if it worked. Probably the litter bins were fuller.
It reminds me of the time I went to Paris.
And stuffed a fiver in my sock to avoid the exchange control stamp in my passport.
I read in a link off from UK Bubble that said both Britain and USA had lowered Interest Rates to 0% to send the signal to the world that they will no longer service any interest payments on their debts.
The article said that with debts 300% of GDP, we would be paying about 25% of annual GDP on interest payments alone, unless we set interest rates to 0%.
The need to keep control of interest rates was explicit in screwing over the bond holders who have lent money to the government, only to watch the returns disappear.
If the governments plans are to be believed they will be paying for all these huge bank bailouts and the magical spending in the economy to revive the construction market (A bad plan in itself as it means picking winners - which probably means companies that are Labour party donors)with a £500 billion gilt/bond release. This would take the total for the bond market up to £1 trillion which is 100% of GDP.
It seems insane that you could on one hand place all your plans to save the economy on borrowed bond money while at the same time putting interest payments to 0% and basically saying you won't get anything back for your investment, at least not in the short term.
I would have thought they wouldn't sell and Brown would be screwed, but it turns out that in the USA the bond issued recently with 0% return have been seen as a safe haven and taken up greedily by the market.
Its complete madness!!!
Operation Divine Scumbag went into full mode back in August 2007. It's goal: to finally wipe out all wealth in the UK and cement Labour Party control over every aspect of the economy and social change. Why? Power. Move your cash and business overseas this month before they move to Operation Infinite Scumbag: currency controls and massive tax increases on any saved wealth.
@Sobers: since banks lend out a multiple of deposits, presumably cutting rates helps c. 9 borrowers for every saver?
@Dearieme: Index-Linked Certs - I think you're right, and if inflation does return after this bout of deflation, many others may think so, too. It may even end with the withdrawal of these products from the market.
economicsinterpreted: "USA the bond issued recently with 0% return have been seen as a safe haven and taken up greedily by the market."
Ah! Is that it? Brown thinks the UK is the USA.
The US$ went up because everyone else is in more trouble, it went up partly because the UK£ is seen as worse.
The US can drop rates to zero, the UK will find they can't..
Let's see.
@ sackerson: I don't think there are more borrowers than savers, just that the amount borrowed could be much larger than that saved (due to fractional reserve banking). But what amount of actual savings/borrowings is affected by a rate cut? A lot of borrowing is on fixed rates and therefore does not decline with base rates, and some is on rates that don't track base rates at all (credit card debt for example). Corporate bond debt is fixed coupon, as is govt gilts.
I would like to see analysis of the amount of cash on deposit at variable rates, vs the amount of borrowing linked to base rates. I wouldn't be surprised to find there wasn't much in it. Banks are certainly quick to reduce savers rates, but less quick to reduce rates for borrowers. My guess is that there isn't much of an overall fiscal boost to the economy by cutting base rates, just that the benfits are focussed on the indebted, who make more political noise than savers do.
The time has come to look elsewhere than the busted UK financial system to place your savings within.
More risk, but more reward, that is the opportunity. The time for risk free reward is gone for some time. It went with the bubbles.
To stimulate one part of the economy you have to unstimulate another part. The Keynesian clowns never get that because they think money = wealth so you can play maths games with aggregate demand, multipliers and so on without needing the factors of production to change
@sobers: good point, not number of borrowers amount borrowed, of course. But as interest rates drop the margin between the banks' costs (presumably mostly fixed) and what they charge borrowers (I think mostly variable, in the UK) gets squeezed. And banks can't cut savings interest too much or they lose the deposits they're working with. So it does seem rather cynical of the politicians to make noises about passing on the benefit of the rate cuts, at the same time as they want banks to restore their cash reserves. I also agree with you that we need more information and more transparency, and we're unlikely to get it, because this would expose the lies and illogic of our leaders.
I reckon Brown is backing himself into corner with his borrowing binge.
When that fails, he is doomed, he has nowhere else to go then.
The days are numbered for that corrupt bafoon and the rest of New Labour.... sooner rather than later please !!!!!
This is what I don't get about interest rate cuts. Surely the interest lost by depositors more than compensates for the interest saved by borrowers? So the net effect on spending in the economy is virtually zero.
Because of leveraging where a bank can take in $10 of deposits and loan out $100, there is actually more money loaned than deposited. That means the borrowers save more than the savers lose because there's more of them.
Whoops! Sackerson already answered it. That'll teach me to rush down to the comment insertion part!
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