0% interest rate is it possible!

gozomark

you need to look at it in inflation adjusted terms - if inflation is 4% and you are earning 6% interest, and spend the 6%, you capital is being preserved in nominal terms, but is in reality dropping by 4% per annum. There is no difference to that and inflation -2%, earning 0% interest and still spending 6% per annum - the spending power of your remaining capital is the same

Blah99

Retail deposit interest rates don't necessarily need to track BoE rates. Also a 0% rate would have some strange side effects, such as an increase in investments in high div yield equities.

nilrem_2

gozomark wrote: »

you need to look at it in inflation adjusted terms - if inflation is 4% and you are earning 6% interest, and spend the 6%, you capital is being preserved in nominal terms, but is in reality dropping by 4% per annum. There is no difference to that and inflation -2%, earning 0% interest and still spending 6% per annum - the spending power of your remaining capital is the same

I know about inflation, what I am trying to say that if one did not receive any interest at all (unlikely I know) then inflation would be irrelevant because someone living on interest alone would have no money to spend however much prices increased due to inflation.

EdInvestor

Blah99 wrote: »

Also a 0% rate would have some strange side effects, such as an increase in investments in high div yield equities.

Dividends from shares tend to be much more stable than bank interest and also tend to rise to cover inflation.What's more,unlike bank interest, they are effectively tax free for basic rate taxpayers.

If you can cope with the capital value of the shares bouncing up and down (rather than the interest rate), a sector diversified portfolio of higher yield shares can be worth considering. To reduce risk it's good to pick 15 or more big blue chip companies with low debt. Try it with a small percentage of your money first.

richardlionheart

yes,

with house prices falling , interest rates heading towards 0 , high div shares look
like one of the few options ( energy utilities usaully give out good dividends )
otherwise this time nextyear if 0 % USA and 0 % here , which countries
would be seen as a safe bet ? frightening .

so maybe when it sinks in with the shell shocked hard pressed savers , we will see certain stocks will begin to rise.

hmm .. i really need to get back to Dubai i think.

Rich

meanmachine_2

I wonder what effect a 0% base rate would have on savings, and therefore bank deposits...

If savers withdrew their money in any large scale way, wouldn't it cause the banking system to collapse?

In reality I'm guessing a 0% base rate would still see retail savings accounts in the 3-4% range.

A 1% base rate in the States hasn't lead to 1% mortgages, far from it.

nilrem_2

meanmachine wrote: »

A 1% base rate in the States hasn't lead to 1% mortgages, far from it.

Any idea what the savings rates are like in the US?

ManAtHome

Some here (ING USA) http://home.ingdirect.com/products/products.asp - Savings 2.75% to 4.25%, Mortgages at 5.65%

nilrem_2

ManAtHome wrote: »

Some here (ING USA) http://home.ingdirect.com/products/products.asp - Savings 2.75% to 4.25%, Mortgages at 5.65%

Thanks for that, so at least it gives an indication that a low base rate may not mean an equally low savings interest rate.

GlasWolf

And according to this, US inflation is at about 5%. As a risk-averse saver (apart from Icesave ), that's scary...