Anyone withdrawing savings due to 1% base rate?

unitedwestand

sh856531 wrote: »

Hi United...,

Can you be more specific? Where on that page does it say the current government sets interest rates?

From the first paragraph:



As far as I know, the government has never used their reserve powers to force the MPC to change an interest rate decision. The last sentence in particular is also instructive as it tells us that even in "extreme economic circumstances", the MPC reports to parliament not government (e.g Brown, Darling et al)

Have I perhaps missed something?

Best Regards

S

Hi S,

I would assume just because the puppet master doesn’t necessarily hang out with the puppets anymore, doesn’t mean that the strings aren’t still in place.

Gordon Brown publicly states that he thinks interest rates should come down further... shock... horror that’s what happens & he certainly hasn’t come out to say he disapproves.

MiserlyMartin

Linton wrote: »

Only presided over the longest period of continuous growth this country has ever seen. People now are richer than they have ever been; the level of grinding poverty is the least it has ever been; the standard and availability of education and health care is the best it has ever been etc etc.

I guess the problem is that no-one younger than say their mid thirties has ever directly experienced anything different.

Continuous growth built on a phony economy built on a debt bubble. Now we see the true picture. Boom and bust -which he claimed to have abolished
Riches that are declining with their inflated house prices.
Poverty decreases due to the generous benefit system that we all pay for
Education standards raised by dumbing down
Health care improved? Anyone for a hospital infection? Anyone managed to get an NHS dentist? Doctors which don't do out of hours anymore or work weekends.
etc etc.

Paul_Herring

sh856531 wrote: »

- The British Government *does not* set interest rates - the Bank of England does, completely independently of government.

~~~1997~~~
Chancellor Brown to BoE: Your remit is to keep inflation to 2% +/- 1%
BoE: Erm - what tools do we have to do this?
Chancellor: The Base Rate.

~~~2007~~~
Chancellor Darling to BoE: Could you possibly do something about the lack of credit available?
BoE: Erm - what tools do we have to do this?
Chancellor: The Base Rate.

I'm unsure of which definition of 'independantly' you were using in your sentence?

I don't like it any more than anyone else does, but *government* has very little to do with your savings rate.

I, and it would seem a few others on this thread, would seem to have a more complete picture of how the interest rate is influenced.

Rafter

The interest rate on savings accounts is set just like any other price - it all depends on the supply and demand for money.

The slight complication is that the Bank of England can influence that rate by changing the rate at which it will lend or borrow overnight - the 'base rate'

An additional complication is that a lot of the bank loans used to pay interest on savings are variable rate and linked to the base rate. So Nationwide building society for example with its SVR on mortgages at 3% can hardly pay 5% on savings.

The government is also schizophrenic. On the one hand it wants banks to lend. On the other hand it wants them to hold higher liquidity at the bank of england.

So the banks are being forced to hold large sums that are earning just 1% so they can't exactly be offering great savings rates either.

Although it seems unfair, savers are actually earning more interest in real terms than they were 12 months ago!

If inflation is 5% and you are earning 6% before tax and paying 20% tax then £100 of savings will buy you £99.80 of goods in 1 years time. So you haven't earned any interest at all, your savings are just about keeping pace with inflation.

As others have noted though, prices are currently going backwards and over the next 12 months inflation is expected to go negative. In 12 months time is it likely that prices will be the same or below where they are now.

So re-run the sums. Your £100 earning say 3% interest will buy £102.40 of goods in 12 months time. So you are actually £2.60 better off even though you have been paid £2.40 less in interest.

Keeping money under the bed is the worst thing you can do for your children and grandchildren though. It will mean there are less jobs, less funds available to enable people to buy houses or invest in businesses.

R.

Grannylonglegs

As someone who worked 47 years and tried to save something towards retirement, I am astounded that, for the purpose of calculating pensioners' tax credit, the DHS seem to think that I can get an inordinate rate of interest - I wonder if they could advise me where?
I am also attorney for an elderly relative, I placed her funds from a matured bond last week in a fixed rate (3.5%) three-year bond with the Skipton Bldg soc - with the option to withdraw 25% of the capital before maturity with no penalties. The bond that matured (aft one year) paid 6.034% - those were the days. I need to maximise her income to pay for nursing home fees...
As for Premium Bonds, I'm taking her substantial capital out - she used to win at least £50 per month, now she isn't getting anything (since Nov 08).
Any advice welcomed. (But not a bank abroad - it's not mine to lose!)

Paul_Herring

the DHS seem to think that I can get an inordinate rate of interest - I wonder if they could advise me where?

No - they don't expect you to get an inordinate rate of interest. They expect you to use some of your capital above the 'floor' they set, it's just that this amount is expressed as an interest rate due to the effect it has on other things like benefits, and people confuse this with an interest rate on the capital as most people understand it. The last time I heard reference to this was at the end of MoneyBox No transcripts up yet, so relevant part of the boradcast:

Paul Lewis: A spokesman for the department of work and pensions told MoneyBox, "This is not about interest rates, it's about asking people with savings of more than 6,000 pounds to contribute a small amount to their weekly expenses. 80% of people on pension credits have savings below 6,000 pounds, so are not asked to make any contribution."

Not that it makes it more palatable of course.

Linton

Paul_Herring wrote: »

~~~1997~~~
Chancellor Brown to BoE: Your remit is to keep inflation to 2% +/- 1%
BoE: Erm - what tools do we have to do this?
Chancellor: The Base Rate.

~~~2007~~~
Chancellor Darling to BoE: Could you possibly do something about the lack of credit available?
BoE: Erm - what tools do we have to do this?
Chancellor: The Base Rate.

I think this is wrong. My understanding is.........

The BoE is setting the base rate low because after the high raw material inflation last year we are now in a period of deflation. Prices are dropping. The BoEs sole duty with the base rate is to control inflation/deflation. With hindsight one could say that the BoE raised interests too high last year.

Deflation is considered to be highly undesirable because it is a great disincentive to businesses or people to spend - they can get things cheaper next month. This reduces business activity which in turn causes further deflation causing further reduction in business activity etc etc (look at the deflation during the 1930's).

The lack of credit is a different issue arising from the uncertainty by the wholesale lenders that the retail banks are solvent because of the transference of toxic US debt around the world wide banking system.

The tools to correct this problem are the supply of credit from the government, and the guranteeing by the goverment of the solvency of the UK banks. If the cause of the problem is confidence the BoE base rate is pretty irrelevent.

Unfortunately the two different problems are linked in that the lack of credit further depresses business which in turn will add to the deflationary pressures.

To pre-answer anyone who says that the low interest rates are adding to the problem by discouraging saving - I think you will find that any changes in individual savings are pretty small compared with the high level flow of funds around the world.

Linton

unitedwestand wrote: »

again... you might want to read beyond post one before you spend 10mins drafting up a reply to it.

Money wont be kept under the mattress.
Savers are the furthest away from being responsible for the current climate.
Many did fix at higher rates, including myself.

Some good points on inverting though, which I've said I'll be doing & wont be carrying all eggs in one basket, there will be a slight higher element of risk which I'm willing to take.

I am glad you did have funds in fixed rates and so presumably have not actually yet been seriously affected by the low interest rates. I hope/expect that the period of low rates will be relatively short.

To take your point about savers not being responsible for the current state of affairs.... It isnt a matter of responsibility - I believe all serious saving/investing should take into account the maxim that "sh*t happens" and spread their funds accordingly. It is the savers fault if they dont and are caught out.

sh856531

Hi united

Gordon Brown publicly states that he thinks interest rates should come down further... shock... horror that’s what happens & he certainly hasn’t come out to say he disapproves.

Come on - thats a bit of spurious reasoning!

I've also stated publicly that I think interest rates should come down further as well - does that mean that the MPC is doing my bidding?

No - it just means that the MPC has decided that the best way to get cash back into the economy is to attempt to slash peoples mortgage rates. The fact that GB may also happen to want them to do that is completely irrelevant.

I'm sure the fact that they have a rudimentary understanding of how to use monetary policy during a recession also has a bit more of a bearing on their decisions than the musings of the moron at number 10.

:-)

Best Regards

S

sh856531

~~~2007~~~
Chancellor Darling to BoE: Could you possibly do something about the lack of credit available?
BoE: Erm - what tools do we have to do this?
Chancellor: The Base Rate.

I'm unsure of which definition of 'independantly' you were using in your sentence?

Yeah I'm sure that in the run up to possibly one of the biggest recessions in history, the MPC was sitting around waiting for the chancellor to give them a call because they weren't sure whether they should cut interest rates or not.

I, and it would seem a few others on this thread, would seem to have a more complete picture of how the interest rate is influenced.

If you say so. Although perhaps, rather than being rude and condescending, you could perhaps go and find some indisputable *proof* that the MPC has ever reversed a decision based on political pressure? Got any? No? Thought not.

S