Dare they reduce interest rates again?

newsaver2008

I have been reading a lot of the blogs (from online newspapers) and there are a lot of angry (mostly pensioners) people who rely on interest from their savings and some are threatening to withdraw all their deposits if the BoE makes further cuts.
Could this be a likely scenario? Runs on the banks by protesting angry savers? And surely the BoE and their advisors will be aware of this?

Blah99

The people withdrawing their savings in protest will be a drop in the ocean, and won't make any difference. At an economic level the BoE and the Government don't care about savers, although they must appear to show compassion for political reasons. All the BoE and Government want to do is to stimulate the economy. Reducing interest rates is one tool they can use to try and do that, and they'll keep using that tool until it either works or goes right the way down to a fraction above 0%.

Unfortunately savers are at the bottom of the priority list at the moment, because they are "safe money".

If savers really wanted to cause a significant ripple in the market there's only really one realistic way to do it. Withdrawing cash makes no sense as it's too risky to store more than a few £thousand anywhere, and that volume of withdrawal wouldn't affect anything (as many people wouldn't bother).

Instead what people should do is to open an instant-access account with each of the big banks. Then, through a widespread public campaign, specific days in a month are selected - for example the 1st, 10th, 20th and 30th. On the first day everyone transfers all of their liquid cash (up to £50k) from Institution A to Institution B. On the second day everyone moves the same amount of money from B to C. On the third, C to D. On the 4th, D to A.

In other words, on 1st March everyone transfers all their cash into Lloyds. On the 10th they transfer it all to HSBC. On the 20th, to RBS, and so on.

This kind of massive money movement would cause a huge ripple in the market and send the banks into a panic, without the implications of causing a real run on a bank (or the security issues of storing the cash at home).

Of course this would never actually happen, but it's pretty much the only way to send a message I can think of. Letters, complaints and polls are meaningless.

OfficeSpace

I doubt many would take their funds out of the banking system ultimately.

Are there any stats on how many pensioners need their savings to live on (presumably on top of a pension)?

gozomark

with deflation, savings rates will still be +ve in real terms, even if they drop to 0%. I'd rather have inflation -1% and savings rate of 0% than inflation of 5% and savings rate of 4%

opinions4u

newsaver2008 wrote: »

I have been reading a lot of the blogs (from online newspapers) and there are a lot of angry (mostly pensioners) people who rely on interest from their savings

I understand their frustration. But to rely on interest from savings for income isn't too wise at the best of times. Let's be honest, with winter fuel payments, free tv licences, pension credits, free bus and coach travel etc etc many pensioners have never had it so good.

and some are threatening to withdraw all their deposits if the BoE makes further cuts.

And put their money where? They didn't rush away from the banks when rates fell from 10% to 5% in a relatively short period in the 90s.

Could this be a likely scenario? Runs on the banks by protesting angry savers? And surely the BoE and their advisors will be aware of this?

Low rates for savers may encourage reduction of debt ahead of saving. That is neutral for the banks from a funding perspective as they would no longer need those savings to back repaid debt.

The money could be withdrawn and given to children. Who will then put it in the bank. Or spend it (which is exactly what 'they' want us to do).

The big danger is millions of pensioners withdrawing £000s and stashing it in their teapots and mattresses. But then they'd be choosing to earn nothing rather than something. And to most pensioners that would be as stupid as going to B&Q on a Tuesday when they can get 10% off 24 hours later.

newsaver2008

Yes I agree with all of that! I think at the best of times it is unwise to live on interest since interest rates always change, depending on the state of the economy. Secondly, it is downright dangerous to leave large amounts of cash in the house.

baby_boomer

Since reduced interest rates enable banks to clobber savers, and since the taxpayer needs the banks to rebuild their capital decent profits, it's hardly surprising that the government doesn't mind lower interest rates.

After all, it's already sitting on a big loss over its share investment in Lloyds/HBoS.