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

The_Dangerman

dag wrote: »

Um ... er ... no ....

Round where I live, even if you had enough cash to buy a house without a mortgage, the interest you'd get from having that money in a high-interest savings account is still far more than the rent you would have to pay to live in a rented house of roughly the same size. And that's even after tax is deducted from that interest. And, yes, even after that 20% house price crash that the newspapers say we're supposed to have had recently.

So, given that that's the way it is right now, how do you suppose it's possible to "buy a house as rental vehicle"? Surely if you can pay your way from the interest on your savings, you'd want to keep it that way, wouldn't you? Why would that be a spur for anyone to blow their savings on something as worthless as, say, a house?.

Um........er.....yes.

You don't have to buy a house "round where you live", you can buy one anywhere in the country. With property prices crashing and rents rising, it means you can get a decent yield, 8% or more.

If you are buying in cash and don't need to sell anytime soon, then house prices are irrlevent.

But my post wasn't about the minutia of house buying, it was about the principle that those living off saving income should not rely on interest rates not falling. We're quick to blame those who mortgage hoping they won't go up, right? So what's the difference?

They should be looking to use that money to get a long term sustainable income. Houses are one, pensions are another. But rely on interest rates not dropping ist the same as relying on them not going up. Risky.

Jonbvn

Interesting article also by Edmund Conway in the DT regarding deflation.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3218075/Britain-faces-deflation-for-first-time-since-1960.html

Looks like the UK could be doing a "Japan". I've never experienced negative RPI before.

With deflation it is usually better to save your money (even at a low IR) than spend it. Basically, why buy now when you can buy cheaper next year? (Particularly relevant to house prices).

Short_Seller

Diversifying into some US dollars could be a wise option.

The powers that being in UK Goverment clearly see a need for weeker Pound to help their ease their current problems.

So on the long term (2-3 years) basis Sterling could very well go back the early 1980's where it was £1.03 to the $1.0 US Dollar.

amcluesent

>help their ease their current problems.<

The thing is that all the Western economies will want to reduce the pain of servicing debt both private and public and boost exports, so we may see competitive devaluations and a break-down of 'syncronised' rate reductions.

The key thing will be whether countries which (semi)peg their currencies to the US$ give-up on the $ as a reserve-currency when they see the printing-presses running. If that happens, then expect to see the $ fall heavily on the exchanges.

cwcw

MiserlyMartin wrote: »

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?

Run in front of a bus?

Short_Seller

Short_Seller wrote: »

Diversifying into some US dollars could be a wise option.

The powers that being in UK Goverment clearly see a need for weeker Pound to help their ease their current problems.

So on the long term (2-3 years) basis Sterling could very well go back the early 1980's where it was £1.03 to the $1.0 US Dollar.

Well were already down to $1.63 this morning.

wombat42_2

I've already got my wheelbarrow on order from ebay :eek:


http://shop.ebay.co.uk/items/__wheelbarrow_W0QQ_dmdZ2?crlp=427276412_228459_228460&UA=WXI6&GUID=245055f011d0a0aad3a6b5e6ff5e5304&agid=308582192&keyword=wheelbarrow

isofa

Uncle_Ben wrote: »

You know.<snip>

I've edited this post, thanks to the admin team for removing the rude, offensive and personally harassing post from Uncle Ben.

These forums degenerated into some very unpleasant comments from a lot of people during the Iceland debacle, we had thought those rude people have left, but it seems wherever there is a forum, there is a troll, posting off-topic and insulting others. Martin and the forum team warned members and posted a thread, which I assume you'd not read at the top of the forum, nor the FAQ like most newbies. Here it is: http://forums.moneysavingexpert.com/showthread.html?t=1206397

LongTermLurker

You know, I too abandoned the board temporarily when the Iceland debacle flared up - I knew that the board would be inundated with thousands of identical, panic-induced posts and decided that those posts wouldn't interest me. When I did log back on, I discovered the "have a go at martin" thread, about 1 or 2 days old and 17 pages or so long - some were saying "martin is the devil" while most wanted his babies! I posted some common sense bullet points, unsubscribed and left it at that.

The point is that beforehand, Martin highlighted that 2 banks born to Iceland, one registered in Iceland and one in the UK, had the best rates of interest and called them "best buys". A number of people dragged up the worst that the tabloids could offer (akin to "I was raped by a cabbage"?) and said that Icelanders were the spawn of the devil. Meanwhile, a few of us said "don't believe what you read - diversify, spread your money and make the most of the high interest rates".

What happened? one of those banks suffered problems, so the other bank's customers put on their fleeces and started a run on the other - then blamed the very people that had told them to make the most while being careful to diversify. I really don't see the point in people signing up just to slag off people who have offered so much sound and helpful advice.

FairyElephant_2

Bazzeer wrote: »

http://www.telegraph.co.uk/finance/economics/interestrates/3211785/Financial-crisis-Interest-rates-to-hit-lowest-level-since-1694.html
Surely this would make savers withdraw all their money from the banking system and cause another financial catastrophe. If the interest rate dropped as low as 3% I think I would prefer the risk free "under the mattress" approach.
I just can't get my head round it, I'd of thought it made more sense in these turbulent times to increase interest rates

To an extent, I agree OP - it seems a simple equation that if banks need to get more money in (which presumably they do, since they don't seem to be lending to each other, they have to get money in from somewhere....) then it makes sense to offer higher rates to tempt savers to deposit with them. Sadly it seems to be much more complicated in fact than in theory, and the whole thing gives me a massive headache!

I have to strip it right back to basics, and for me, it is a simple sum between the rate I get on savings and the rate I pay on my mortgage (taking into account tax of course) - if I get more on savings then I save it - if the rate drops too low then I pay it off my mortgage, and quite a few friends I have discussed it with lately are the same.