MSE News: Government demands simple savings

Milarky

Loughton_Monkey wrote: »

Herein lies a dilemma. Very competitive means 'complicated' which in turn means a huge swathe of the great unwashed not having the knowledge to shop around and/or understand the most simple concepts. The Government cannot have it both ways.

I suspect someone in Whitehall is getting issues like:

- They told me I'd get 5% by saving £250 a month, but £3,000 at 5% is £150 and not the miserable £72 they paid me.....

HMG uses this in reverse of course. The half year road tax 'only' costs 10% more - but that represents a discount rate of 49%. Where else can you legally make that kind of return?



50% (6 months) costs 55%. Leaves 45% 'borrowed' (for 6 months).

45% (govt sub) -> 55% (in 6 months)

Annual return = (11/9)^2 = 121/81 or 1 + 40/81sts (49.38%)

"'But it's only 10 percent more!"

le_loup

All you who praise the complicated charging structure of products and praise it as competition overlook the deliberate "confusion marketing" now used by all suppliers from supermarkets, to telecoms, to banks, to energy companies. They are all at it. Why do electricity suppliers need to have (as EDF does) eight different tariffs? Is it because they know I will be confused and give up? You betcha!

datostar

le_loup wrote: »

All you who praise the complicated charging structure of products and praise it as competition overlook the deliberate "confusion marketing" now used by all suppliers from supermarkets, to telecoms, to banks, to energy companies. They are all at it. Why do electricity suppliers need to have (as EDF does) eight different tariffs? Is it because they know I will be confused and give up? You betcha!

I went into my Bank and said, "I'd like to lend you £5,000 for an indefinite period. You can pay me 2.5% interest for the first year, then something like 0.5% until I decide I'd like my money back". They said, "You must be mad. We certainly couldn't make money on a lending deal like that if we offered it".

Exactly.... neither can we!

Consumerist

le_loup wrote: »

All you who praise the complicated charging structure of products . . .

I don't think anyone is praising complicated savings accounts but they do create opportunities for those willing to do a little research.

Do you expect to be paid a salary without going to work?

Former_MSE_Dan

Thought i'd join in with this as I find it really interesting.

I have heard it said quite a few times by various official organisations and individuals that financial products in general should be simplified so that they can 'cater for all types of people'. While I reckon there is merit in doing this for investments (ie, inherently risky, structured products), it always seems rather patronising to me - almost as if people without extensive personal finance experience should only be offered 'simple' products, not ones with a good rate.

It always seems to me that the one thing that unites almost everyone on these boards - whether it is savings, mortgages, restaurant 2for1s or whatever else - is getting as good a deal as you can. Clearly the information surrounding accounts needs to be clear and accessible for everybody (not just the 'vulnerable' or inexperienced), and then once savers have taken in the facts they should be free to get the best rate they are happy with, be it with an intro bonus, or in an account without access for a year, or whatever else.

However the subtext of the kind of comments I;m talking about always seems to be "well lets let them have OK rates, but we've decided XYZ is more important". From a MoneySaver's view this is miles wide of the mark, I reckon.

Oldbiggles

Whilst it’s easy to agree with some of the comments posted here. I’m suspicious.
Does this mean that the Gov’t is about to create yet another Quango to investigate this well know problem? (another excuse for ‘legitimate’ expenses that won’t be questioned, no doubt)
The Gov’t keep coming up with great ideas (like ISA’S for instance). But no sooner have the financial institutions started them up they immediately start adding complications to boost their profits. An ISA was launched as a CAT standard savings account, but now you’d have a hard job finding one, and you will never convince me that the interest rates being offered are fair. Banks and Building Societies are guilty of holding back on the Tax Free element of these accounts.
They should only be permitted to offer a instant access ISA if the interest rate is equal to or greater than ANY other savings account on their books. (and that includes the rates they offer on term accounts, child accounts, over 60 accounts or any others.

dunstonh

I have heard it said quite a few times by various official organisations and individuals that financial products in general should be simplified so that they can 'cater for all types of people'. While I reckon there is merit in doing this for investments (ie, inherently risky, structured products), it always seems rather patronising to me - almost as if people without extensive personal finance experience should only be offered 'simple' products, not ones with a good rate.

Simple products are often the best solution for people with simple requirements who dont want what is technically the best option or optimal option. Just a simple option.

One of the things we have to do in an advice scenario is balance the recommendation with the ability and willingness to understand and what sort of management in future there will be. I frequently recommend investments I would never touch myself. As will most advisers. This is actually quite difficult for most IFAs as we want to do what is best and that is why someone uses us. However, you often have to dumb it down a little and use what is best within the understanding of the individual. For example, If someone isnt going to let you review the portfolio so you can rebalance and bed&ISA each year or utilise other tax allowances, then you have to go with a more basic solution and accept they are not going to get the best from it and there is nothing you can do about it. Its better for them to have a product designed for a "lazy investor" that can do as much as possible within the product automatically even if it costs more or cant do everything because something is better than nothing and if its simple, they cant really do any damage whereas a complicated option might.

However, we do need the choice as not everyone is the same.

Some years back, the FSA trialled some flow charts on financial advice with a view to following through with a simplified advice service offering simplified products. They found that the flow charts only gave the right advice in under 3/4 of cases.

To simplify savings, all the FSA has to do is abolish introductory interest rates and force the banks to go back to marketing fixed term deposits correctly (i.e. dont call them bonds). You then end up with immediate access, 30-90 day accounts and fixed term deposits with a headline rate that is the same for everyone in that account whether they deposited this week or a year ago.

Simplified income protection is interesting as the waters have muddied on that. Historically PHI as the main income protection product. It still does a good job. However, PPI providers started marketing their products as income protection and many consumers dont even know PHI exists (the income protection articles on this site dont mention PHI for example). You now have PPI, PHI, MPPI and PPI with accident and sickness only or standalone unemployment. I think its good there is choice but you need to know the choice exists and that is where it falls down.

davidgmmafan

Correct me if I'm being dumb here but isn't the issue one of education? If people don't have the basic maths skills needed to understand interest then they are kind of doomed before they being. Sure they can teach themsleves, but you have to ask why in the world there wouldn't be calculations done in maths classes which are useful in the real world.

Would the credit crunch have been as bad if people could understand compound interest, or how evil the 0% offers can be if you spend on the card. I don't think so.

So for me that's where the problem and the solution lies. There is something in what people are saying about 12 month bonuses on savings and the sheer amount of tariffs from energy suppliers. I like the term confusopoly used by Douglas Adams. The effort involved in sorting it out can be outweighed by the effort involved.

In energy most people cannot understand thier bill, and when they do switch a lot of people end up on WORSE tariffs as a result of dodgy doorstep sales people. Banks are little better in terms of selling IMO.

opinions4u

Correct me if I'm being dumb here but isn't the issue one of education? If people don't have the basic maths skills needed to understand interest then they are kind of doomed before they being. Sure they can teach themsleves, but you have to ask why in the world there wouldn't be calculations done in maths classes which are useful in the real world.

But what are we asking people to work out?

Are we saying that people don't know that 3% is better than 0.5%.

Is there a lack of understanding that "no withdrawals allowed" means that I am not allowed to withdraw.

Is there confusion that "bonus for 12 months" means that I get something extra for 12 months.

Even the majority of the educationally challenged in society can work these things out. The problem isn't education and it isn't the complexity of savings products available. It's laziness, lack of interest and an inability to make a diary note (or mobile phone reminder).

Loughton_Monkey

davidgmmafan wrote: »

Correct me if I'm being dumb here but isn't the issue one of education? If people don't have the basic maths skills needed to understand interest then they are kind of doomed before they being. Sure they can teach themsleves, but you have to ask why in the world there wouldn't be calculations done in maths classes which are useful in the real world.

I'm with you to a large extent. 'You can't legislate for the stupid' is another way of putting it. Just look at the "Food Fascists". Over the years we have had legislation on ingredients lists, then included e-numbers, then 'nutritional' stuff about fat/sugar content, then 'source' information, then 'traffic light' indicators...... All a complete and utter waste of time and money for most people who simply grab the oven-ready chips and have done with it!

Virtually all legislation ends up documentation and communication. [AER's, Risk warnings, Commission disclosure, Reduction in Yields, etc...]. This is fine, but assumes that the public (a) CAN read, and (b) WILL read. Sadly, quite a few fall foul of (a) these days, but even more fall foul of (b)

So if the written form, or disclosure doesn't work, then that implies using regulation about 'Can't do this, Must do that.... etc.' Fine, but then that leaves those who can read out on a limb because sophisticated products are not available.

At the end of the day, I feel almost like crying! Here we live in a once-rich country. We are now a desperately poor country - but more importantly getting poorer every day. UK Ltd. is draining money every month. Virtually all the family silver is sold or mortgaged....

...and here we are wasting what precious small resources remain paying armies of Civil Servants to nit-pick the unpickable, legislate for the stupid, shovel cash from one poor wretch to another, and load our dwindling industries with more, more, more, bureacracy and baggage.......

.... going downstairs for a large Gin & Tonic!