What will the government to to help savers

Arthurian

jon3001 wrote: »

These pensioners trying to derive an income from savings interest are idiots. As others have posted, everytime you spend your interest the value of your capital goes down in real-terms. And interest rates are highly variable as we see.

Deposit accounts are short-term instruments that aim to preserve the real value of one's capital.

Deriving an income is a long-term requirement and the capital should be invested. Capital fluctuations (as we've seen lately in the markets) should be of no concern for someone wanting income. A diversified portfolio of bonds, equitity income and even property funds would provide a more stable and diversified income stream.

Right now you can get equity income funds paying dividends over 10 times the BoE base rate!

I have a feeling it would not be wise to ignore the depletion of one's capital in order to get a regular income, particularly if you are a pensioner who has no opportunity to replenish the capital invested.

gozomark

as long as you look at real not nominal capital, then thats a wise feeling. If you mean nominal capital preservation is the objective, no matter what the inflation (or deflation) rate is, then its not

Hungerdunger

baby_boomer wrote: »

The government has screwed savers by pressurising the Bank of England to reduce interest rates to 0.5%.

baby_boomer wrote: »

The government will screw savers by unleashing inflation via quantitative easing.

You can't have it both ways; if you don't like the way interest rates have reduced recently because savers are going to have to dip into their capital, then you should be pleased that there will be inflation, because the interest rates will go up and savers won't have to dip into their capital any more.

What I think you fail to see is what gozomark has been bravely battling on about: that although you won't have to touch the capital, the value of that capital will be eaten away by inflation, thus making you no better off than you are in the current situation where interest rates are low, but inflation is also dropping rapidly.

ChuckCash

Hungerdunger wrote: »

...thus making you no better off than you are in the current situation where interest rates are low, but inflation is also dropping rapidly.

This makes perfect sense so long as the inflation rates accurately reflect the reality on the ground.

It may just be my perception, but while my savings rates are directly related to my actual financial situation, none of the official statistics for inflation, however they are measured, seem to bear a resemblence to what's actually happened to my purchasing power. In other words, if we had 0% interest rates and 0% official inflation, my purchasing power would still appear to be diminishing.

Are we being bamboozled with statistics or is it just a trick of the eye?

gozomark

CPI and RPI are accurate measurements of what they are intended to be - measures of inflation for an average person - RPI includes a housing component, CPI doesn't. Your personal inflation could be higher or lower - you can get an idea of which by checking the Govt website - its been mentioned lots of times on these boards - probably some years you will face higher than average, some years less - over a 10 year period, the average is probably a reasonable reflection for most people.

Human nature is such that we tend to remember those things that go up in price, and those items we buy every day (eg newspaper), and forget the things that go down in price, and those things weonly buy every few years (eg TV, PC), so many of us instinctively think we have a higher personal inflation rate than we actually experience

A classic example was the adoption of the Euro - many consumers in Italy were convinced there was 10% inflation caused by the conversion, when the reality was 0.2% at most - in simple terms, they saw the cost of, say, a coffee go up 25%, and extrapolated to everything

baby_boomer

Unfortunately the government has many other problems on its plate and keeping savers happy isn't their top priority - even assuming it was in their power to help.

Don't forget that they have lost out on £billions of tax revenue from savers as interest rates have fallen. To add to the £billions they won't receive in corporate tax from the banks.

Another major factor against savers is the need for banks and building societies to rebuild their capital base - which they will do by widening interest rate margins between savings and loans.

Savers currently benefit from rates way above bank base rate - but how long will that last?

gozomark

baby_boomer wrote: »

Savers currently benefit from rates way above bank base rate - but how long will that last?

as long as the credit crisis lasts

Steve_xx

baby_boomer wrote: »

Don't forget that they have lost out on £billions of tax revenue from savers as interest rates have fallen. To add to the £billions they won't receive in corporate tax from the banks.

In that case they'll have to start making some cutbacks. A good start would be the recovery of all of those secondary homes that MP's seem to acquire whilst in office, and at the taxpayers expense. Remarkably, when they are no longer in office, they are allowed to retain the property that the taxpayer has effectively funded.

I think that all of these properties should be recovered into the public purse.

metrobus

gozomark says.

rather than accusing people of massaging the figures, how about doing some homework - look at whats in the CPI and RPI indicies, and come up with concrete examples of how its being massaged. Eg - you say electricity is up 28% - what is the CPI and RPI electricity component up ?

Thats alot more useful than just spouting off

I live in the real world and thats what my electric price has increased by.
I do not really care about your indicies,just what its costing me.

So do yourself a favour and keep quiet if
you do not have anything worth saying please boy.

you also say

2. BoE is independent - they cut rates due to deflation

which shows us all how little you actually know,since even your
cherished official figurers show we are not in
deflation,please get your facts correct boy.

sh856531

which shows us all how little you actually know,since even your
cherished official figurers show we are not in
deflation,please get your facts correct boy.

He never said that the economy was suffering from deflation - just that the BoE cut rates to minimise the risk of it occuring.

Best Regards

S