Why are savings rates on the floor?

Glen_Clark

Thrugelmir wrote: »

There's a shortage of money.
.

Britain is awash with cash - the Government has just printed another £375,000,000,000. But its being invested abroad because people see that as a better bet than investing in Britain. You only have to read this forum to see where most of the cash is going.
The Government needs to make investing in Britain more attractive - better skilled workers, better infrastructure, lower housing costs, simplified tax system, etc etc.
Not just keep printing more money to be invested abroad.

CLAPTON

Thrugelmir wrote: »

There's a shortage of money.

Savers chasing the highest rate merely moves what's on fixed term deposit around the system on maturity. Which merely forces higher the cost of borrowing.

Given we need growth in the economy. An orderly exit from the years of easy credit are required.

A shortage of cash and REDUCED saving rates do not go together.

The reality is there is shortgage of credit worthy companies and credit worthy individuals wanting to borrow plus a too much mindless regulation which is why interest rates are so low.

CLAPTON

nilrem wrote: »

But if savings rates were zero there would be little point in keeping funds in the bank as the next step they would be charging us to save with them effectively a negative interest rate!
Come to think of it some banks are paying such low rates it would not surprise me if they did start imposing a negative rate!

glen clark has already covered the area but just to say again

with inflation at its present level you already have negative interest rates and you are spending your capital.

you are already being charged to save money.

the government can get away with this because people simply don't understand inflation and don't blame the government; mad of course but that's how it is.

at even a modest 3% pa inflation in 10 years your 1,000 will be worth about 650 i.e. you have lost 350

marathon_man_3

CLAPTON wrote: »

well the reality is that if you receive 3% interest and inflation is 5% then you are actually spending your capital.

Not so, surely, if you only spend the interest received (plus other non-investment income received).

Glen_Clark

marathon_man wrote: »

Not so, surely, if you only spend the interest received (plus other non-investment income received).

Reading comments like this is a real eye opener into how the Government is getting away with inflating away people's savings.
People don't seem to understand what inflation is.

Glen_Clark

CLAPTON wrote: »

A shortage of cash and REDUCED saving rates do not go together.

That explains it better than I did. Thank You.

Glen_Clark

Lets put it another way.
You invest £100 at 10% interest
At the end otf the year you have £110, less £2 tax = £108
But with inflation at 10% that £108 is only worth about £98
So you have less money even if you don't withdraw any of the interest.
If you take the interest (£8) as income, you only have about £90 in real terms

Amazing how many people, even on a money forum like this, don't seem to understand that basic fact.
I can now see why the politicians see inflation as the most politically acceptable solution - because so many people don't understand it.

(I say 'about' because I don't want to make the calculation any more complicated)

Linton

This is the reason why many people use cash savings to cover short term needs. In the short term the return doesnt matter too much. For any long term savings a broad range of share based !!!!!!!!!!! is far better as share prices and dividends should roughly rise with inflation and the returns are tax free for most investors.

Edit: Why is the word i-n-v-e-s-t-m-e-n-t-s regarded as obscene? Seems strange for a money management site.

arcadia00

You can make choices and alter your own personal inflation rate. That is why I would take interest over none. (providing the inflation rates rendered the two situations otherwise identical)

CLAPTON

arcadia00 wrote: »

You can make choices and alter your own personal inflation rate. That is why I would take interest over none. (providing the inflation rates rendered the two situations otherwise identical)

well obviously one would take interest if the alternative was nothing (all other things being equal) but that doesn't get away from the point that one is spending one's capital.

Better to have index linked saving even if they paid no interest than most savintgs accounts; which of course is whjy the government has withdrawn them.