MSE News: Savings in crisis

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Massive market changes as savings bank accounts slashed...
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'Savings in crisis'
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  • jimjames
    jimjames Posts: 17,670 Forumite
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    I think the headline is a bit sensationalist in the Daily Mail style.
    Even with the reduced rates, these current accounts are still paying way higher rates than savings accounts or cash ISAs.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • Joe_Bloggs
    Joe_Bloggs Posts: 4,535 Forumite
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    @JimJames
    These rates changes may be a step in a progression of steps to all accounts being closer to zero interest rate, if not negative given inflation.
    J_B.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Another OTT article. Nothing new here.
  • teddysmum
    teddysmum Posts: 9,475 Forumite
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    Joe_Bloggs wrote: »
    @JimJames
    These rates changes may be a step in a progression of steps to all accounts being closer to zero interest rate, if not negative given inflation.
    J_B.
    Businesses may absorb (or rather pass on the effect of) a negative rate , but private savers are very unlikely to pay someone to use their money (or put away money to make it decrease in value) so will withdraw, making the negative rate pointless for private accounts.
  • SalarySlave
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    I disagree, I think savings is in crisis, it has been for quite a while. This is just the latest blow to savers. I know I am very disappointed to see these headline line rates reduce by huge amounts. For years now I have been saving well despite low interest rates in the hope that there was light at the end on the tunnels in the form of an interest rate rise. Debt is being encouraged and savers are being punished.

    In order for me to maximise my interest I am moving a few things around which is a pain. I am going to have more exposure to the stockmarket now at a time when I think it is overvalued and due a crash.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    In order for me to maximise my interest I am moving a few things around which is a pain. I am going to have more exposure to the stockmarket now at a time when I think it is overvalued and due a crash.

    No offence intended, but it seems monumentally stupid to buy more of something that you think is worth less than you're going to pay for it and that you expect to crash in value.

    Just because a bank has stopped giving you free money or dropped its rates by a couple of percent, it sounds like an overreaction to go and buy shares for £120 that you think are only worth £100 and might crash to £60.
  • Voyager2002
    Voyager2002 Posts: 15,335 Forumite
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    bowlhead99 wrote: »
    No offence intended, but it seems monumentally stupid to buy more of something that you think is worth less than you're going to pay for it and that you expect to crash in value.

    Just because a bank has stopped giving you free money or dropped its rates by a couple of percent, it sounds like an overreaction to go and buy shares for £120 that you think are only worth £100 and might crash to £60.

    Yes, but we are in a world of probabilities rather than certainties. The view that the stockmarket is over-valued means that you think that a share that currently costs £120 is unlikely to increase to more than £150 while the risk of it falling to £90 or lower is rather greater than the risk that you would choose to run. Seen in this light it is not such a foolish choice...
  • polymaff
    polymaff Posts: 3,905 Forumite
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    edited 19 October 2016 at 6:10PM
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    Typically apocalyptic - but this time the wolf might well be at the door.

    Why the regular down on Premium Bonds?

    "a 1.25% 'interest rate', though most won't win anything like that much".

    Everyone with a, say, £20k investment has a reasonable expectation of 1.167%, tax-free (based upon latest NS&I data) over a few years. Some will win more, some will win less but the medium-term return will be just about 1.167%.

    If Santander 123 at 1.5% before tax is suggested to be a good home for £20k - then 1.167% tax free (just about the same as the Santander rate to a basic rate taxpayer with more than the PSA's limit) shouldn't be so peremptorily dismissed, IMHO
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    Yes, but we are in a world of probabilities rather than certainties. The view that the stockmarket is over-valued means that you think that a share that currently costs £120 is unlikely to increase to more than £150 while the risk of it falling to £90 or lower is rather greater than the risk that you would choose to run. Seen in this light it is not such a foolish choice...
    If the risk of it falling to a low level is rather greater than you would choose to run...

    Then you should not choose to run it.

    The risk is greater than you would "choose" to take. You are choosing whether to take the risk. Based on what you would choose to do, you would not choose to run the risk. Ergo, you would not, and should not, choose to take that path. QED.

    People may say, "well, what I mean is, it's greater than I would *choose* to take, but I don't really have a choice do I, the government and bankers are forcing my hand, it's not worth taking 1% at NS&I if inflation is going to be 3% because I'll lose 2% in real terms.... I don't have a choice, I *must* get out of cash and buy an equity income fund that I think is overvalued and overdue a crash which could cost me 30-40%."

    Sorry, that's BS.

    I'm not saying whether or not I personally think equities are overvalued, due a crash or whatever. But if *you* think something is overvalued, and especially if you think it is "due a crash", you should not buy it, unless you can rationalise that on the balance of probabilities it is not actually due a crash and it is not actually worth any less than you're paying for it.

    It is better to stick with your £100 turning into £90 through inflation, than buy something that you feel is worth less than £100, is a risk you would not choose to take, goes against your better judgement... and then watch it fall to £70. That is the way to mental anguish and financial ruin.

    If it is only worth £90 now in your opinion, and might fall to £70, then hold your cash and buy it with your £90 cash when it costs £90 or £70. If you begrudgingly accept that it *is* worth £100 at the moment, and you are happy to ride out the risk of it falling to £80 or £70 or £60: then sure, buy it.
  • Ray_Singh-Blue
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    I predict that many asset classes will lose value when governments stop buying their own bonds. Bond yields will rise, so capital values will fall (mathematically). The price investors are willing to pay for many equities will drop too, as bond yields start to trump dividends.

    However I have thought this for the last 5 years and been wrong so far

    This is why I am happy to include cash and commodities in my investment portfolio, alongside equities. But not bonds, at present..
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