When banks actually charge you interest on savings...could happen

Fulham_Mark

I read Roger Bootle's book that was published years ago. He claimed the UK economy was booming purely on cheap credit and a run away housing market.

It would all crash v badly and we would enter a period of deflation. (really?)

As BoE interest rates reach 0%, high street banks would have to charge you interest for looking after your savings. Effectively a management fee of maybe 0.5% a year. Rates could be -0.5%

Well what are you going to do? Take it all out and hide it all under the duvet?

Would people spend their savings or move it all overseas and run-down deposit levels at banks.

Deflation is also really nasty and not particularly well explained in the media.
Imagine you are a factory owner and want to expand. In deflation, you will probably sell your products for less in a year's time but if you borrow money to expand, your debts will constantly increase and your income from sales reduces every year. (put simplistically)
This is in addition to people holding off from purchases incase prices fall further.

A vicious circle of falling prices, no investment, job losses and so on.

The Bootle chap does have recomendations and positive predictions too.
But concludes that we will realise that after the boom has busted we will all realise how little benefit the boom had to our economy. I.e. no tangible improvements were achieved

Desperate_Housewife_2-2

Interesting theory.....

I have read about different approaches to tackling recession and it seems that this government appears to be backing the keynesian theory http://en.wikipedia.org/wiki/Keynesian_economics and want to encourage spending to kick-start the economy, hence the cut in VAT etc...

I should imagine the majority of people in general will not be in a position to save now for a number of years if there is a lot of debt to shift, it will be interesting to see what the banks do...

Lokolo

It won't happen because people will take their money out (remember NR?) in masses. Cause more chaos. Then what will the bank have to lend money out to people? Thus then destroying the banking system completely.

SGE1

If saving rates are negative, wouldn't credit rates also be negative (or near zero)? Wouldn't that therefore encourage spending (on property, gold, Beatles memorabilia, whatever is seen to have some intrinsic value), and wouldn't that therefore cause inflation?

Lokolo

SGE1 wrote: »

If saving rates are negative, wouldn't credit rates also be negative (or near zero)? Wouldn't that therefore encourage spending (on property, gold, Beatles memorabilia, whatever is seen to have some intrinsic value), and wouldn't that therefore cause inflation?

Ha banks paying you to borrow money.... now theres a thought

Reaper

Absolutely. Even of the BoE rates reaches 0% the savings rate won't go to 0% and certainly won't go negative. The banks are too desperate for cash, and for that matter the last thing the government wants is for savers to move their money overseas, which is what would happen.

Fulham_Mark

Yes, if rates were negative I would hope that it would encourage spending.

But you wouldn't spend it all if you were worried about losing your job or expecting to retire soon.

I'm not an expert..

I also remember that people on fixed incomes will do rather well. The pension burden would keep increasing too.

I am surprised that the Keynsian approach doesn't include any infrastructure projects but seems to me to be short-term fixes to keep things ticking over for a year or so (election perhaps?)

isofa

Banks make enough money out of business for account maintenance and transaction fees to be able to offer free banking to "personal" customers. I pay a decent amount for monthly business charges, it's absolutely crazy, especially as 95% of our transactions are BACS or DD based.

Banks don't just make money of of lending to mortgages and other credit, they have all manner of diverse investments and interests.

If banks ever suggested they would charge you to deposit money in personal savings accounts, rather than giving even a derisory interest rate, I'll eat my hat!

lilac_lady

If banks charged for keeping money on deposit, I'd buy shares in piggy banks, (poor) safes (comfortable) and guns (rich) in case everyone decided to keep their money at home!

Lokolo

isofa -

would you comprimise and let banks charge fees but then offer different services based on these charges?

so basic package - debit card, free transfers with FPS upto £500 a day - £5 a year
silver package - as above but with overdraft agreement (no charges for upto 1 change/month to overdraft, and ok interest rate), cheque gaunrenetee, £15 a year

etc.?

isofa

Lokolo wrote: »

isofa -

would you comprimise and let banks charge fees but then offer different services based on these charges?

so basic package - debit card, free transfers with FPS upto £500 a day - £5 a year
silver package - as above but with overdraft agreement (no charges for upto 1 change/month to overdraft, and ok interest rate), cheque gaunrenetee, £15 a year

etc.?

Not for personal customers, I wouldn't expect to ever pay a fee on a basic cheque / debit card current account. However many do offer "value-added" accounts offering additional "services" for a monthly or yearly fee.

Personally I have no need for any additional services on my current account, I just want a fast clean service, a decent interest rate if applicable, and no-one trying to sell me extra add-ons. But I'm not an "average" consumer. I can't remember the last time I wrote a cheque in a shop, and hence needed a guarantee card, I rarely use my debit card (due to security mainly, and it also offers no purchase protection like a credit card), so I have a points reward credit card I use for all day-to-day spending, which is cleared every month.

As a business customer, I want a clean simple account with low charges, I have no need to ever consult with the bank, unless they mess something up, I have accountants I pay for expert advice. All I want from a bank, is banking services!

I think it's fair banks charge for overdrafts etc, but not excessively.