Will interest rates ever go back up to 5% - 7%?

CreditCardChris

I get why the governments put interest rates to 0%, they want people to invest in the economy like the stock market or property instead of saving it in a bank but I feel like back in day investing in the stock market was optional, it was the option if you wanted a bit more return for a bit more risk. However now there really isn't an option, it's basically the stock market or buying / renting property and that's it. Savings accounts don't even pay enough interest for your money to maintain its value against inflation, let alone beat it.

Of course this is a great strategy to make the billionaires even richer by giving the public no other option but to invest in the stock market if they don't want to see their savings eroded by inflation and I don't see how the government will ever reverse from this path? Why would they ever increase rates again when they know that will just lead to people withdrawing their money from the stock market and putting it in a bank account, which lowers the stock market, makes billionaires less money and slows economic growth.

I actually remember being 7 years old or so in 1997 and the word trillion was used a joke, it was used to indicate the value of something was infinite, you know in the same way gazillion was used or whatever. The number was so large it was meaningless. Now just over 20 years later and the word trillion is used so frequently, we have companies valued at a trillion dollars, government bailouts in trillions and in another 20 years we'll have individual people with net worth's of a trillion dollars. It's insane. 

I look at the market and I can't help but wonder how overvalued it is because governments have given people no other option but to invest in the markets which pumps the price of companies probably double what they're actually worth... But at least if the governments keep interest rates at 0% then people will continue pumping money into stocks so at least there's no risk of a significant crash.

A worldwide virus which shuts down entire countries for months, causes millions to default on credit and lose their jobs and the worst that happens is the market drops 35% over a 2 month period then immediately bounces back? In that case I'm very sure nothing short of an actual nuclear war will have any serious long lasting impact on the stock market and then your portfolio will be the least of your worries anyway...

tl;dr 
Buy stocks because governments are biased towards them and won't allow them suffer any long term damage.

DiggerUK

Savings rates have no link to BOE Base Rates. They have not been related since retail and investment banking was separated following GFC1 in 2007/8.

The government guarantees on private savings comes with a condition, the banks and building societies can't invest it elsewhere, and they can't securitise it to raise money.

Interest rate rises on savings? No. Interest rate rises on borrowings? Yes..._ 

CreditCardChris

DiggerUK said:

Savings rates have no link to BOE Base Rates. They have not been related since retail and investment banking was separated following GFC1 in 2007/8.

The government guarantees on private savings comes with a condition, the banks and building societies can't invest it elsewhere, and they can't securitise it to raise money.

Interest rate rises on savings? No. Interest rate rises on borrowings? Yes..._ 

The BOE base rate determines the minimum interest rate banks can offer so it does have a direct impact on what rates banks set? If the BOE base rate was 5% wouldn't it be illegal for banks to offer 1% for example?

Banks of course have no problem with giving people 0.2% interest rate on savings but still charging 5% mortgage interest... Just like credit cards, interest rates slashed to 0%, credit card interest rate still 20% haha. They've actually created a system when you actually lose money by trying to save!

Sailtheworld

I'm not sure that investing in cash has ever been a lucrative risk free activity. It's always been the case that low risk = low return.

There are plenty of people (on this board in particular) who are unwilling to actively expose themselves to any risk and must therefore be willing to scrabble from account x paying 1.1% to account y paying 1.3%. Higher rates just gave the illusion that cash was a real investment.

grumiofoundation

CreditCardChris said:

Banks of course have no problem with giving people 0.2% interest rate on savings but still charging 5% mortgage interest... Just like credit cards, interest rates slashed to 0%, credit card interest rate still 20% haha. They've actually created a system when you actually lose money by trying to save!

But in neither of those examples are you actually "saving" 

Also cuurently mortgage rates are much lower than that. Mortgage rates and the best fixed savings rates are pretty similar. 

Prism

The BoE change the interest rates to try and balance UK inflation and growth, and to help with government and corporate debt. 
If they put up interest rates too much then government struggles to pay back its debts and UK companies don't grow as quickly. Oh and the pound goes up which is worse for our exporters and some companies go bust. This is the sort of stuff they need to balance.
Stock market valuations and individual savings rates from banks are way out of their scope though obviously affected to some degree by their decisions. 

eskbanker

CreditCardChris said:
The BOE base rate determines the minimum interest rate banks can offer so it does have a direct impact on what rates banks set? If the BOE base rate was 5% wouldn't it be illegal for banks to offer 1% for example?

No, of course not! Many legacy accounts have been offering derisory interest rates of 0.01% and the like, which are obviously below even the current record low base....

grumiofoundation

You seem to be working off the assumption
entirety of economy = stock market

CreditCardChris said:

I get why the governments put interest rates to 0%, they want people to invest in the economy like the stock market or property instead of saving it in a bank but I feel like back in day investing in the stock market was optional, it was the option if you wanted a bit more return for a bit more risk. However now there really isn't an option, it's basically the stock market or buying / renting property and that's it. Savings accounts don't even pay enough interest for your money to maintain its value against inflation, let alone beat it.

Of course this is a great strategy to make the billionaires even richer by giving the public no other option but to invest in the stock market if they don't want to see their savings eroded by inflation and I don't see how the government will ever reverse from this path? Why would they ever increase rates again when they know that will just lead to people withdrawing their money from the stock market and putting it in a bank account, which lowers the stock market, makes billionaires less money and slows economic growth.

It is still optional to risk your money. If you choose to not invest you may lose a small amount versus inflation but you not not risking any capital. 

CreditCardChris said:

I look at the market and I can't help but wonder how overvalued it is because governments have given people no other option but to invest in the markets which pumps the price of companies probably double what they're actually worth... But at least if the governments keep interest rates at 0% then people will continue pumping money into stocks so at least there's no risk of a significant crash. Isnt there?

Thrugelmir

CreditCardChris said:

DiggerUK said:

Savings rates have no link to BOE Base Rates. They have not been related since retail and investment banking was separated following GFC1 in 2007/8.

The government guarantees on private savings comes with a condition, the banks and building societies can't invest it elsewhere, and they can't securitise it to raise money.

Interest rate rises on savings? No. Interest rate rises on borrowings? Yes..._ 

The BOE base rate determines the minimum interest rate banks can offer so it does have a direct impact on what rates banks set? If the BOE base rate was 5% wouldn't it be illegal for banks to offer 1% for example?

No it wouldn't be illegal. 
Base rate determines the interest rate that banks can borrow at or deposit excess liquidity with the BOE overnight. 
The BOE has two remits. One to control inflation, the other to maintain financial stability in the banking system. 

Albermarle

I think when interest rates were a lot higher, so was inflation , so nothing changes in that respect.

Alistair31

I hope no, so long as I have a mortgage.