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

baby_boomer

Yahoo Link - FTSE100 again falls to below 4,000 on Thursday morning

Reuters Thursday - Europe shares fall as fears for recession intensify

The problem is preserving the real value of your capital - and it's hard to see where that might be achieved at the moment.

Or at least not with much certainty unless you go for NSC index linked certificates.

AbbieCadabra

FairyElephant wrote: »

...
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.

thank you! we thought about this a short while ago but decided we'd carry on saving as the interest rates were just outweighing any benefit of an overpayment on our m'gage.

our ISA money is all tied up with Icesave at the moment :rolleyes: , so i've been so wrapped up in trying to find a 'safe' savings a/c, i'd completely forgotten about this option!

fortunately, we needed our normal savings that were with Icesave for cashflow on something else just before they went kapput, talk about fortunate timing on a transfer! :j

thanks again :T

alchemistkevin

Am I the only one thinking that would be a good idea considering I have a mortgage to pay and a 'home' that's losing value every day...


I will not go out and borrow more, granted I won't save with the rates being at 1% but then I'm not saving now.

Maybe there's many more people like me that the Govt. has data for and is considering reducing the BoE rates.

What this will do is: Enable me, each month, to spend less of my money paying off the interest on the mortgage, leaving me extra in the bank every month which I will then go out and spend on a new car or buy new clothes or whatever and thus stimulating the economy. (See the headlines today, Sony, DSG, etc all cutting their sales and profit forecasts) which will then enable the shops to employ more people and and this will help with less repossessions and the said people having more money to pay their mortgages off and holding on to their homes (which are the primary issues at the moment).

Granted this will cause inflation in the long run, there's no arguing that, but if the Govt. has to print/borrow more money to fix the current problems then that will only worsen the situation and I'm sure most of us would rather pay £2 for bread that we can afford than a pack at 50p when we're homeless and the £'s not worth anything.


I'm no fan of the current Govt but it's better to look at the bigger picture than coming out all guns blazing and then discovering that you're firing hollows.

collingwood21

Maisie11 wrote: »

My Mum is 76 and she belongs to a number of senior clubs. A number of her firends do not trust banks and have withdrawn their money. Mum didnt like to ask where they had put it but I think we can guess. They dont seem to realise that if they get burgled they wont be covered but would rather take the risk. How worrying.....

My nan used to do this. It was only when she died that we realised just how much cash she kept in the house. I dread to think how awful it would have been if there were conmen or burglars who found out...
:eek:

isofa

collingwood21 wrote: »

My nan used to do this. It was only when she died that we realised just how much cash she kept in the house. I dread to think how awful it would have been if there were conmen or burglars who found out...
:eek:

Very true, my Grandma used to as well, insisting her pension was safer at home. Luckily we called in several times a day to make sure everything was ok, but on several occasions she, her neighbours or us personally thwarted distraction burglaries.

Large amounts of cash are never safe at home, let alone in vulnerable peoples homes.

manhattan

As mentioned earlier on this thread, after reading this i was just thinking that if interest rates go so low people like myself would just withdraw the lot which would cause another cash flow problem for the banks etc.

The thing is i wouldnt know what to do with the cash? Buy gold or something and build a gold bbq in the garden?

LesU

If no mortgage is involved then I would be inclined to put the money into Premium Bonds. Even if the winnings are low, at least someone is looking after your money, you've got (relatively) instant access and a chance of winning a million.

GW65

Jonbvn wrote: »

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).

There seem to be major flaws in the argument that deflation always encourages people to save rather than spend (in the expectation that whatever they want to buy will be cheaper next week/month/year).

It may work for houses, where people have the option of renting than buying and so can hang on until the deflation switches back to inflation.

It should work for discretionary spending on regular goods, but doesn't seem to in practice. For most white goods, we've actually had deflation for years/decades. Every new model of flat-screen TV is cheaper than the previous model, and each model gets cheaper by the week until it's superceded - bit still people buy them now rather than waiting. Afterthought: maybe it's that many people don't pay attention and haven't realised that there's deflation for some goods; if they're told by the Daily Mail that there's deflation they might actually stop spending.

It doesn't work for non-discretionary spending. Even if you expect food and energy to get cheaper, you still have to eat and stay warm!

The only thing that really seems to stop people spending is inability to get credit and/or the expectation that their income is insecure so they'll need their savings to cover basic living costs.

manhattan

LesU wrote: »

If no mortgage is involved then I would be inclined to put the money into Premium Bonds. Even if the winnings are low, at least someone is looking after your money, you've got (relatively) instant access and a chance of winning a million.

I think thats where im putting my money once Icesave cough up my hard earned stash.
:rolleyes:

neil324

Rates are going one way thats for sure, maybe the cuts wont be passed on while libor is still high, well not to borrowers anyway. Ive tied 85% of my cash away in 2 year fixed term accounts.