Interest Rates

JGal

Surely you have to consider the interest rates in relation to inflation (wages and products). OK banks savings rates have gone down recently while the BOE base rate has remained constant, which must be a long term predictor for rates. It's fine wishing for 10% bank savings rates, but then inflation will be up there as well.

mulronie

Nominal interest rates (what your bank pays) are less important than your real effective interest rate (what your bank pays you, minus tax, minus inflation). Real interest rates are currently negative; this means that money in the bank is losing its purchasing power over time.

However... while interest rates in recent months have come off, annual RPI inflation has also been trending downwards - it was 4.8% in December 2011, but 3.1% in December 2012. So on the bright side, while savers are nominally worse off from today's lower rates (i.e. you are earning less interest than before), there's an argument that saved cash is actually losing less value today than it was a year ago.

Masomnia

Losing less value isn't much comfort!

Of course interest rates are forward looking while inflation rates are backward looking. So you don't really know what your real return is until you get it.

With regard to my long term savings, none of it is in cash.

kidmugsy

melbury wrote: »

What are people to do?

Grin and bear it. Don't panic and carry on. You can't undo the dreadful government of Blair and Brown, the reckless Chairmanship of Mr Greenspan at the Fed, or the woeful economic decisions made by Presidents Johnson and Nixon back in the 60s and 70s. We now are where we are. It's a !!!!!!, and no mistake.

Gobosly

Answering the original question, I suspect that most people are just putting up with paltry interest rates. However, those who do not accept that are investing in quality retail bonds offering 4-6% and blue chip equities (and funds) whose dividend offer similar returns and possibility of further capital growth.

I used to always have a portfolio of 50% cash and 50% equities, (many years ago), but since interest rates started falling I have limited cash to the minimum 6 months earnings (and the rest in equities, funds and bonds).

The main reasons were to increase returns and also to hit banks and building societies where it hurts. This cheap lending fund the banks can now access has made things far worse again, and I would like to see more people moving their savings out of banks and building societies. I am also not convinced that the "Governments funding for lending" is working, but that is a whole new discussion area!

nilrem_2

C_Mababejive wrote: »

The problem with too many savers is that they are apathetic. They are quite content to keep money in rubbish savings products,being shafted and being amde to underwrite losses which have !!!!!! all to do with them !

If the interest rate is rubbish,simply pull your money out.

Store it at home
Invest it
Spend it

But dont leave it in paltry savings accounts with the added loss of being taken for a fool. Not only is it financially damaging but also spiritually.

Don't wish to offend but advising savers to withdraw their cash and store it at home is pretty bad advice IMHO!

I don't think that the savers who frequent these forums are apathetic either, fact is they do switch but unfortunately there very few places to switch to at the moment.
Spending it is not always an option as they need the capitol to generate some income however poor the interest may be and many can not afford the risk of other types of investment!

Zebra

Low interest rates and high inflation is great news for those in debt. The debt simply decreases without having high repayments.

And who do we know with record levels of debt?

Yep - the United Kingdom.

The government, any government, will be in no rush to increase interest rates or lower inflation.

jimjames

Masomnia wrote: »

With regard to my long term savings, none of it is in cash.

Same here and less than £1k in cash. The emergency savings I have are in mortgage being offset and the remainder is all in ISAs, SIPP and investment trusts.

For a lot of people there is an option other than poor savings rates but many of them either won't look or don't understand risk.

C_Mababejive

#28..Do you say this from a security point of view? If so then it is relative to how much you have,your means of storage and insurance levels/attitude to risk. At least you will have physical position of your bits of paper whereas the banks dont really have it. It only exists on a spreadsheet.

melbury

Gobosly wrote: »

Answering the original question, I suspect that most people are just putting up with paltry interest rates. However, those who do not accept that are investing in quality retail bonds offering 4-6% and blue chip equities (and funds) whose dividend offer similar returns and possibility of further capital growth.

I used to always have a portfolio of 50% cash and 50% equities, (many years ago), but since interest rates started falling I have limited cash to the minimum 6 months earnings (and the rest in equities, funds and bonds).

The main reasons were to increase returns and also to hit banks and building societies where it hurts. This cheap lending fund the banks can now access has made things far worse again, and I would like to see more people moving their savings out of banks and building societies. I am also not convinced that the "Governments funding for lending" is working, but that is a whole new discussion area!

Where is the best place to find out about the "retail bonds" that you mention?

I am still thinking about income paying investment trusts, it is difficult to know what to do for the best.

Many thanks.