Interest rates could drop to 1% - what's the point of risking money in savings?

cwcw

I don't think keeping money at home is the answer (risk of fire and theft). Money in the bank is guaranteed up to £50k so is 100% safe.

Also, even if the BoE rate does drop to 1% (highly unlikely), savings rates are likely to be at least a couple of % higher. The base rate is 4.5% now but it's not hard to find accounts paying 2% above that - I've just opened one. Given the "current climate" I think we will have to see a return to traditional banking and in order to do that, banks have to attract savers to become more capitalised and actually have real money to lend to people.

tomstickland

Oblivion wrote: »

I don't think any lessons have been learnt at all yet.

After the event and before it happens next time some minister will solemnly say "lessons have been learnt".

TRUSt_NO_1_2

LongTermLurker wrote: »

So long as you stick to the "rules", banks are still risk free until all governments have become bankrupt.[/quote]

My definition of bankrupt : Unable to meet future liablities.

The UK government has public sector pension liabilities that would cost £1trillion to buy...absolute minimum..probably multiply that number by 5 now
(plus all the other money they've promised)

It has just given away £500 billion,which is equivalent to 4 to 5 years of total receipts from income tax.

The Government's net income after it's 'bills' is less than zero.Nobody knows the number because it's a joke accounting system.

If they were an individual,they would be selling the 'BIG ISSUE'....if they could find anyone stupid enough to give them one to sell.

Antispam

Trust perhaps you should work for Tory party you seem to be enjoying scaremongering

dag_2

I don't think keeping money at home is the answer (risk of fire and theft). Money in the bank is guaranteed up to £50k so is 100% safe.

Yeah but there's safe and there's safe. If we have a Zimbabwe-type hyper-inflation situation, then, whilst money in a bank would still arguably be "safer" than money under a mattress, it would be meaningless to describe it as "safe", because your savings wouldn't be worth anything a few weeks down the line anyway, no matter where you'd kept it.

The only thing which would be "safe" would be to convert it into a currency that's less volatile than sterling - or buy gold.

But it depends what you mean by "safe". Shares sometimes pay divvies, properties sometimes pay rent if you put tenants in them, and cash savings accounts in any currency will pay interest. But there doesn't seem to be any way of earning an income from gold. Unless you count mining. Point is, gold seems to be the only thing that isn't at risk of crashing out completely, although having said that, I do believe it's possible for gold to go into a bubble.

wkt54

Quote:
Originally Posted by wkt54
I renewed my 1 year Fixed Rate Bond with Nationwide on Wednesday.

Would I be able to change it to 2 years?

I believe (but am happy to be corrected) that some banks or building societies offer a "cooling off period). You need to check Nationwide's Ts and Cs to see if you might be covered by that.


I'm getting 6.50% gross.

Do you think I would be wise to change to 2 years, which is 6.25%, if I can.

Hungerdunger

wkt54 wrote: »

Quote:
Originally Posted by wkt54
I'm getting 6.50% gross.

Do you think I would be wise to change to 2 years, which is 6.25%, if I can.

Assuming you can afford to tie the money up for two years, it all depends on where you think interest rates will be one year from now. Personally I think they will be a percent or two lower than they are now, but this is just a "gut feeling" and in these turbulent times, I suspect few people will be able to give you a confident prediction.

MiserlyMartin

Lets get a bit more on topic. If interest rates fall to 1% then the big problem is inflation. If it stays high then theres no point in putting our money in the bank in this country. Also if they lower rates and other countries do not, the pound will tank to parity with the euro/dollar or even lower. And imports will become more expensive - again becoming inflationary.

The governments may have it wrong. Cutting rates will stimulate spending and may inflate the bubble all over again. Browns mistake was to stoke a consumer boom but keeping rates too low over the last 8 years. Nobody really knows what will happen but I would have a guess at short term deflation before inflation takes off wildly again. Hyperinflation possibly if the governments get even more desperate and keep trying to 'save the economy'. I'd say the best thing they can do is stop meddling and let people and banks go under. Yes there will be pain but not as much as further down the line when it finally goes and they have no more options left!

dag_2

Yeah, I agree, if interest rates go that low, there will be inflation, and your savings won't be worth a lot anyway. And I agree that cutting rates may inflate the stock market and property market bubbles. However, having seen what happened in Iceland, I wonder if not cutting rates would simply create an unsustainable bubble out of the currency instead.

When the value of the Icelandic kroner collapsed, it wasn't as a result of the central banks cutting interest rates, unless I'm greatly mistaken. On the contrary, it was actually keeping interest rates high that caused the problem.

You see, keeping interest rates artificially high tends to encourage foreign currency speculation. People borrow money in foreign currencies in order to save in their home currency. Even if they don't manage to get particularly good retail interest rates, the (short term) effect that the general interest rates have on local inflation, and therefore the exchange rate between the two currencies, means that the value of the high-interest currency they have saved in gradually increases with respect to the low-interest currency they have borrowed in.

But the trouble is, such currency bubbles cannot be pumped up indefinitely. In the short term, it becomes easy to make money from such speculation, and this in itself has an inflationary effect. If central banks try to counter that inflation by upping the interest rate, then it pumps up the bubble even further, creating bigger speculation profits and even more inflation.

Indeed, this desire to borrow foreign currency, so as to profit from speculation, might explain why people from Iceland wanted to set up and run banks in foreign countries that paid such jaw-droppingly large interest rates in the first place.

Once everyone starts doing it, the money markets become flooded with the currency that had been previously pushed up (in Iceland's case, the kroner), and the bubble bursts.

My point is, trying to control inflation with interest rate adjustments is only a short-term measure. If you try to do it over the long term, it creates currency value bubbles, which lead to boom-bust economics.

Course, if central banks keep interest rates down, I suppose the speculation will still happen, but it will be the other way round; people will borrow in home currency to save in foreign currency, or to invest in some other asset instead.

MiserlyMartin

Thats an interesting viewpoint. I had not thought of that side of it. Anyone else care to have a go at predicting what we should do with our savings should this happen?