LloydsEasy Saver AER reduction

Ben8282

Just ben advised by Lloyds that the pathetic 0.2% AER rate on the Easy Saver is being reduced to 0.1% AER effective 17 FEB 2020..
Obviously don;t have any actual savings in this account.

pearl123

Ben8282 wrote: »

Just ben advised by Lloyds that the pathetic 0.2% AER rate on the Easy Saver is being reduced to 0.1% AER effective 17 FEB 2020..
Obviously don;t have any actual savings in this account.

I very much doubt many people are using this account.

polymaff

Getting a lot of notifications of reductions in rates for accounts I wouldn't be seen dead in - unless it is for the DD facility.

Latest one (today) is from Birmingham Midshires - again a 0.2% → 0.1%.

With all of these carp rates we'd better be prepared for the savings institutions going over to pro mille. Doesn't look quite so pathetic when its:


2‰ → 1‰

Thrugelmir

Birmingham Midshires is part of Lloyd’s. Hardly surprising that the rates on offer are mirroring each other. Little point competing internally for deposits.

CreditCardChris

The thing I don't understand about interest rates is if banks continue to lower the rates, then people are not saving and if they're not saving the banks are not being given money to invest right?

But low rates encourage loans and mortgages to be taken out etc.

So what actually has to happen in the economy for the interest rates to go back up to 5% or more? It's very frustrating as a young person that our only source of saving is via the stock market and when the stock market is at all time high, it's psychologically nerve raking.

You're 20 years old:
The stock market is at all time highs.
Housing prices are through the roof.
Interest rates are basically negligible.
Wages have stagnated relative to costs.

Such a great time to be a young person...

Ben8282

The banks are paying out ridiculous amounts of money in paying switch incentives, which in my opinion is doing nothing to attract 'quality' customers defined as a customer who maintains their main current account into which their earnings are paid with that bank, while at the same time reducing savings and current account rates, reducing cashback and increasing overdraft interest rates.

MDMD

CreditCardChris wrote: »

The thing I don't understand about interest rates is if banks continue to lower the rates, then people are not saving and if they're not saving the banks are not being given money to invest right?

no, sorry, wrong!

They have been given loads of money by the government at ridiculously low interest rates (via the BOE’s Funding for Lending programme).

This means the banks are awash with cash and have no need for any retail deposits unless it’s a loss leader designed to sell other products.

bowlhead99

CreditCardChris wrote: »

The thing I don't understand about interest rates is if banks continue to lower the rates, then people are not saving and if they're not saving the banks are not being given money to invest right?

Customer deposit accounts are only one source of financing for the banks - they can also borrow on the wholesale markets with a variety of maturity dates and rates, issue bonds and rmbs etc. The cheap money they took from the government 'funding for lending' scheme which ended last year doesn't need to be paid back/ refinanced until next year and the year after.

But low rates encourage loans and mortgages to be taken out etc.

Yes, low rates are helping people borrow to support the prices of residential and commercial properties and for businesses to fund expansion and investment and recruitment and for consumers to spend.

So what actually has to happen in the economy for the interest rates to go back up to 5% or more?

If the economy was booming and lots of overseas economies were doing likewise and also increasing their interest rates, with UK inflation going through the roof, the BoE would no doubt consider increasing rates, to take money out of the 'investing and spending' part of the financial system in favour of the 'be cautious and prepare for a rainy day' part of the system. But then they would only need to decrease rates again to defend against unemployment and lack of business investment.

Some economies (eg Japan, Eurozone) have negative interest rates. The 'new normal' globally is well below 5% for a long time to come.

It's very frustrating as a young person that our only source of saving is via the stock market and when the stock market is at all time high, it's psychologically nerve raking.

Your key source of *investing* products is the financial markets, which generally spend a lot of their time at or near their all time highs. But your source of *saving* is as it has been in the past - bank and building society or credit union or NS&I accounts.

You shouldn't expect to get a long term positive real rate of return (after inflation) from risk-free savings accounts: commercial organisations such as banks don't owe you a living. Sometimes the best rates you can find will be less than inflation. That doesn't matter too much when you are not trying to use them to 'grow' your wealth - that's not really the purpose of a rainy day fund.

You're 20 years old:
The stock market is at all time highs.
Housing prices are through the roof.
Interest rates are basically negligible.
Wages have stagnated relative to costs.

Such a great time to be a young person...

Previous generations had massive interest rates if they wanted to buy property or borrow for cars or other personal expenditure, and rampant inflation eroding the value of the high nominal interest rates - so be careful what you wish for.

The fact that a wage isn't going up quickly for a given job should be of little concern to a young person because they have 40-50 years of potential career growth ahead of them and as they go up through the ranks building their skills and experiences, they will command better rates of pay.

CreditCardChris

bowlhead99 wrote: »

Customer deposit accounts are only one source of financing for the banks - they can also borrow on the wholesale markets with a variety of maturity dates and rates, issue bonds and rmbs etc. The cheap money they took from the government 'funding for lending' scheme which ended last year doesn't need to be paid back/ refinanced until next year and the year after.

Yes, low rates are helping people borrow to support the prices of residential and commercial properties and for businesses to fund expansion and investment and recruitment and for consumers to spend.

If the economy was booming and lots of overseas economies were doing likewise and also increasing their interest rates, with UK inflation going through the roof, the BoE would no doubt consider increasing rates, to take money out of the 'investing and spending' part of the financial system in favour of the 'be cautious and prepare for a rainy day' part of the system. But then they would only need to decrease rates again to defend against unemployment and lack of business investment.

Some economies (eg Japan, Eurozone) have negative interest rates. The 'new normal' globally is well below 5% for a long time to come.

Your key source of *investing* products is the financial markets, which generally spend a lot of their time at or near their all time highs. But your source of *saving* is as it has been in the past - bank and building society or credit union or NS&I accounts.

You shouldn't expect to get a long term positive real rate of return (after inflation) from risk-free savings accounts: commercial organisations such as banks don't owe you a living. Sometimes the best rates you can find will be less than inflation. That doesn't matter too much when you are not trying to use them to 'grow' your wealth - that's not really the purpose of a rainy day fund.

Previous generations had massive interest rates if they wanted to buy property or borrow for cars or other personal expenditure, and rampant inflation eroding the value of the high nominal interest rates - so be careful what you wish for.

The fact that a wage isn't going up quickly for a given job should be of little concern to a young person because they have 40-50 years of potential career growth ahead of them and as they go up through the ranks building their skills and experiences, they will command better rates of pay.

So would you say that if an economy is weak and struggling, interests rates will be very low. Then if an economy is strong and healthy, interest rates will be high?

Yes, low rates are helping people borrow to support the prices of residential and commercial properties

But the price of property is so high than the salary to loan ratio banks are willing to offer still isn't enough to buy. For example even on a £38,000 annual wage banks will only lend a max of about £170,000 which is just enough to by a 1 bedroom flat... 10 years ago you could have bought a 2 bedroom house for that.

And now this isn't just London, it's the entire south of the country.

ColdIron

CreditCardChris wrote: »

For example even on a £38,000 annual wage banks will only lend a max of about £170,000 which is just enough to by a 1 bedroom flat

Twas ever thus

bowlhead99

CreditCardChris wrote: »

But the price of property is so high than the salary to loan ratio banks are willing to offer still isn't enough to buy. For example even on a £38,000 annual wage banks will only lend a max of about £170,000 which is just enough to by a 1 bedroom flat... 10 years ago you could have bought a 2 bedroom house for that.

Well, if you are part of a couple, you might pool your resources and buy a multi-bedroom house. If you are a singleton with 40-50 years of your career still to go, you might expect to start off in a small flat and work your way up.

The £170,000 you borrow to get the flat, on an 80% LTV deal with a 5-year fixed rate of 2.2%, will cost you £737 a month if you take a 25-year mortgage. That's only 30% of the £2448 net pay (after tax and NI) that you get from your £38,000 annual wage.

If mortgage interest rates were 3% higher at 5.2% instead of 2.2%, the £170,000 would cost you over £1000 a month which is over 40% of your net pay.

If you want savings rates to be at 5% and banks to be able to make profits on their lending, perhaps the 5-year fix on the mortgage needs to go up a further couple of percent to 7.2%, so the borrowed £170,000 would cost you £1223 a month which is half your £2448 net pay.

So, in your imagined ideal scenario you would borrow £170k and pay it off at £1223 a month, getting a 2-bed house, instead of today borrowing £170k, paying it off at £737 a month, getting a 1-bed flat. As you can see, going to a bank and acquiring £170k of property-purchasing power is much cheaper today than in previous decades, which explains why you can no longer buy property for low prices.

Most people don't have big piles of money sitting around to buy a property for cash, and need to use a mortgage, and would not relish paying 66% extra for the mortgage, even if that gets them a bigger property. Just because the bank is willing to lend 4.5x their gross salary, doesn't mean that they can actually afford to have 50% of their net pay (before pensions, savings, bills, lifestyle) go on the mortgage for their 'starter home'.

You moan that the money you can get from the banks 'still isn't enough to buy'. On £38,000 it is enough to buy something, even if it's not the ideal thing that your sense of self-entitlement thinks you ought to be able to have just because you know some people who were more fortunate with the timing of their own property purchases.