Savers you've never had it so good?

Stavros_3

sam2222 wrote: »

Does Marin Lewis want to apologies to those who lost thousands after he encouraging the members of this site to invest in the Icelandic banks last year due to the rates of high interest on their savings accounts?

As a self confessed ‘financial expert’ he seems as caught of guard as the rest of the bankers he is quick to criticise.

If something seems to good to be true...

Fasinating first post and just joined !. Obviously a bitter and twisted alter-ego of someone already registered and lambasted Martin on previous threads.

Paul_Herring

KEVSART wrote: »

I personally think it's prime time for savers to actually SPEND their savings,since the earnings have dropped so low and it's still quite hard to get a loan in order to buy something.The only question is what to spend the money on : it will have to be something long-lasting and likely to appreciate (or not depreciate as quickly in other words) but as the saying goes "you can't take it with you".(If I can't take it with me I'm not going).
Regards

That isn't spending. That's investing.

Spending involves buying something that cannot be 'redeemed' like a service (care home fees e.g.) or a new plasma telly.

And it is the latter that GB and co. want us to do.

gozomark

right now Gord is happy for you to spend or invest !

OsaMayor

lukekelly wrote: »

This is entirely tangential. Of course if you spend more than your income then eventually you run out of money. This has not been disputed once on this thread. No amount of "being prudent" will enable you to buy 10 years care if you have enough money for 5 years care.
Those arguing against you are not arguing on technical matters. Our argument is that we should ignore 'technical' categories such as capital and instead focus on purchasing power. People may feel that capital is a sacred object not to be touched, and indeed some do. They often feel this way for understandable reasons. That doesn't mean it's true. Financial realities should be explained in a sympathetic manner, but they must be explained in a truthful manner. This includes the fact that sometimes it is as prudent to spend capital as it is to spend your interest income in other times. It's absolutely not a technical matter, it's making sure you focus on what your savings can buy. The idea that you shouldn't concentrate on the buying power of your savings, that is, you should treat capital as an inviolable category, is the strange technical notion. Who cares about the capital as some fixed number? I care about what I can purchase! That means taking inflation into account.

If people don't want to erode the value of their savings then it is not enough to say "don't spend your capital". You must say "do not spend any capital or any interest needed to cover inflation". People may think that if they don't spend their capital they won't erode the value of their savings but that's entirely wrong. I can completely understand people with no income not wanting to reduce the value of their savings. Sometimes though you can maintain the spending power of your savings (again, spending power isn't some technical category, it's the only one which should matter to people) whilst spending capital. You are perpetuating the lie that spending capital always reduces the spending power of your savings and not doing so preserves it. All these categories must be adjusted for inflation or you end up dealing in abstract numbers, not purchasing power.

Thanks Lukekelly - interesting points well put. However, it probably does not help in the case of my 97 year old Dad (I've written about him in this forum but long after your posting). He has fixed outgoings of Care Home Fees (probably increasing in April) and the prospect of diminishing interest on the capital from the sale of his Council House last year. We will have to re-invest when the current fixed interest 1 year Bonds end and if interest insufficient then we will have to take from the capital to make up the shortfall. I suppose our only consolation is that at 97 years he is unlikely to live long enough for all the capital to be used (leaving his chidren none of is hard earnt wages)
and for him to then have to claim from the Local Authority for the fees - something he would have hated to think of doing as he always wants to pay his own way in life. It's seems a sin to live too long as no ordinary working man can save enough for Care Home or even higher Nursing Home fees from savings.

lukekelly_2

To be honest he has little choice in his situation: he has to pay those care home fees. Whilst it's going to be disappointing to him and you to spend those savings he will get something in exchange: (hopefully) high-quality care.

The point of this thread is that the current situation where he has to deplete his savings is probably no worse for him than the previous situation. If he spent all his interest on care home fees and inflation increased those fees then relative to those fees his savings have been depleted. It just wasn't obvious. At present his savings will decrease but, on average if not necessarily for him, increases in care fees will reduce. His savings will likely pay for as many years of care now as they would have if we were now in the same situation as a year ago.

samy_2

i just wanted to point out that regardless of the fictitious basket, or the RPIs, CPIs, etc, etc.. i simply DO NOT BELIEVE i am better off at the moment.
can someone please explain to me what i am missing?? fuel bills went up by 30%, water is about to go up, council tax increases exponentially every year, my season ticket takes an astronomical hike every january... i don't know who these people are, but i look at whats in my wallet/bank account at the end of the day and not what i'm told i'm spending, and i am certainly no better off...

i believe in saving and will not be tempted to spend just because interest rates are low.. unneccesary items might be cheaper at the moment, who needs more clothes, etc? its the vital stuff that counts and this only increases..

the only people i see benefitting are those on a tracker mortgage..

koru

OsaMayor wrote: »

None of Martin's comments works for my old 97 year old Dad. A working man all his life he managed to buy his old council house. We sold his house to finance his Care Home costs earlier last year and invested the money in 8 Fixed rate 1 year Bonds/accounts after trawling through the information on the Money Saving Expert site. It has worked so far and the interest plus his Goverment Pension and Attendance Allowance and Pension Credit have kept up with the full cost payments for the Care Home. However, as these Bonds/Accounts come to an end we will have to invest the capital again at lower rates and the interest will not cover the Care Home costs so we will have to deplete the capital. I am wondering whether I should re-invest in variable rate rather than fixed rate for the future as the rate might change and leave us behind if we go for a fix. Any comments?

This is a good illustration of some of the points Martin, Luke and others are trying to make about inflation. Ignore, for a moment, the recent falls in interest rates and inflation. What you were doing might have seemed sensible, but if you were using all the interest to pay the care home fees then you were likely to run into a problem, because the care home charges were likely to increase. Assuming the care home fees increased by 5% a year, you would need the interest income to increase by 5% a year in order to keep track with the costs. If the interest rate had stayed the same, then you would have needed your capital to increase by 5% a year in order to generate the rising interest income that you needed. In other words, you would have had to reinvest some of the interest income, so that your capital kept track with inflation. If you did not do this, then your interest income would, in future, be insufficient to meet the care home costs.

The reason I make this point is to illustrate that what really matters for your Dad is the difference between the interest rate and the inflation rate that he faces. If care home fees were increasing at 5% per year then in order to maintain your ability to pay them you should have been reinvesting the first 5% of the interest each year and spending only the excess interest. Equally, if care home fees were falling by 5% per year, even if you were depleting your capital by 5% a year you would still be maintaining your ability to pay the care home fees.

Your Dad might or might not be worse off now (I don't have enough facts to tell), but if he is, it is not because the interest rate has fallen. It is because the rate of inflation for your Dad has not fallen in line with interest rates.

Assuming your Dad's main expense is the care home fees then his inflation rate is equal to the rate of increase/decrease of the care home fees. If these fees increase at a lower rate than they were doing (or if they fall), then it is possible that your Dad might be better off than he was.

Your Dad's situation does not show that what Martin said is wrong. It shows that it depends on your personal inflation rate (which is what Martin said).

gozomark

samy wrote: »

fuel bills went up by 30%, ..

there's your answer - went - past tense - what will fuel bills do in the next 12 months ? probably go down, by, lets say 10%

the latest CPI of 3% includes fuel bills up 35% I believe

Reaper

samy wrote: »

i simply DO NOT BELIEVE i am better off at the moment.
can someone please explain to me what i am missing?? fuel bills went up by 30%, water is about to go up, council tax increases exponentially every year, my season ticket takes an astronomical hike every january

It it entirely possible you are worse off, that's why the personal inflation calculator is useful.

But bear in mind inflation has only just started to fall. Those energy price rises you complain of are starting (very slowly) to drop which gives you personally negative inflation in the future, petrol prices are well down from their peak, etc

Some will be better off, some will be worse off. It all depends on what your money goes on.

EDIT: Beaten to it by Gozomark

home_alone

Paul_Herring wrote: »

That isn't spending. That's investing.

Spending involves buying something that cannot be 'redeemed' like a service (care home fees e.g.) or a new plasma telly.

And it is the latter that GB and co. want us to do.

I am at an age where long term and investing on not words on my agenda so its got to be spending, just bought a new car so thats out, nothing else I need so I might as well just die now, anyone else for a 6 figure sum funeral..

gary