0.5% Cut

jimbow25

Lokolo wrote: »

And as the student loan is a low interest loan it can never be more than 1% above the base rate. Keep up

To be completely accurate the rule is not 1% above the BoE base rate, as you seem to suggest, but 1% above "the average base rates of 11 major UK banks" (as per Martin's article). As most banks seems to follow the BoE base rate anyway I can't see it making much difference, but if a few were to refuse to pass rate cuts on, then we might see the student loan rate fall, but not by the full amount expected.

Lokolo

^^ yeh but most of time they follow

a7man

ScarletBea wrote: »

Oh yes? Why?
Please justify.
You do know that this rate doesn't have much to do with the rates that banks use between themselves, don't you?

It's also not that linked to business loans...

The government want to make it less attractive to save in conventional interest accounts, so people will buy shares & investments that will help the economy. They are also hoping people will spend more on disposables, putting more money back into the economy.

nicko33

jimbow25 wrote: »

"the average base rates of 11 major UK banks"

are there 11 major banks left ?

ScarletBea

a7man wrote: »

The government want to make it less attractive to save in conventional interest accounts, so people will buy shares & investments that will help the economy. They are also hoping people will spend more on disposables, putting more money back into the economy.

But it doesn't work like that!!!
It's not the fact that "normal" interest rates are low that sends people to the stock market, at least not if they're like me, totally risk-averse. That's why the money's in saving accounts (either instant access or mostly fixed rate).
And if I see my interest income going down, that just makes me spend less, not more.

a7man

ScarletBea wrote: »

But it doesn't work like that!!!
It's not the fact that "normal" interest rates are low that sends people to the stock market, at least not if they're like me, totally risk-averse. That's why the money's in saving accounts (either instant access or mostly fixed rate).
And if I see my interest income going down, that just makes me spend less, not more.

Yes, but your money losing value in real terms due to inflation is a risk in itself. Are all your pension funds in cash? Its v rare to find someone so risk averse that they will only invest in bank savings accounts, over the long term you are missing out on a lot of money.

arcadia00

a7man wrote: »

over the long term you are missing out on a lot of money.

Typical rubbish that trips off the tongue of touts.

ScarletBea

a7man wrote: »

Yes, but your money losing value in real terms due to inflation is a risk in itself. Are all your pension funds in cash? Its v rare to find someone so risk averse that they will only invest in bank savings accounts, over the long term you are missing out on a lot of money.

For information, I think the way it's organised it's 40% shares and 60% bonds.
I always wonder if I should change this, since there's still over 20 years until retirement age (is it 65 here?), but it goes against everything I feel in my blood, hehe

You don't need to reply, I see that your attitude to risk is completely different to mine

poorjim

Hi All

Not sure if this has been asked else in forum but how does the rate cut truly help the economy? Surely if the banks don't match the rate cut then the rate of loan applications won't go up, therefore where does the extra money come from to spend in the economy. Surely all the interest rate cut does is allow the banks to make more profit. . Who knows??? guess we just have to look after ourselves and hope that someone in power knows what they are doing?

ramble I know but if someone can shed some light on the reason why interest rates cuts should help the situation.

pj

Reaper

poorjim - it works best if the banks pass on the rate cuts which is why they hard been bullied by the government into doing so in the past. However they are now very reluctant to go any further so the effect of future rate cuts is dimished - it just mean banks make more money.

Well, that's the simple answer, but looking at it further it is not that simple. While banks have been forced to cut lending rates they have also had to cut savings rates which is not helping them attract money from savers to enable them to balance the books (which they need to do to avoid going bust). As a result they are not keen to lend out new money for mortgages and businesses which harms the economy. So it is not really such a bad thing for the banks to make more money for a bit in the hope that once they feel more stable they will be more willing to lend new money.

Even that is a simplistic explanation - we need to look at wholesale markets to complete the picture, but that's enough for now!