Interest on savings seems to be disappearing altogether - why and what are the future implications?

Annabee

Wondered if anyone who has a better grasp of economics than me can explain, or hazard a guess?
This is following on from the absolute slashing of interest paid on NSandI Income bonds, from 1.16% (?) which seemed reasonable, pathetic as it was compared to the past, to an unbelievable 0.01% .  They are effectively saying 'go away, we don't want your money'.  Why is this happening?

As a knock on, everything else seems to be dropping. Then I have heard speculation about 'negative interest rates', so you would be charged for them to look after your money??? How would this work?    I see someone on here has posted about overpaying on your mortgage instead, that seems sensible. Personally I'm thinking about putting all my savings into Premium Bonds, then I least there is the chance of a good pay out, and there is not much to lose since all 'savings' accounts seem to be paying virtually nothing.   
 What are other people's strategies to deal with this?

Apologies if this is posted in the wrong section, or already been covered.

bradders1983

The BoE base rate is 0.1%, the lowest in history, and there is talk of this being cut to zero or even negative.

In a nutshell, that is your reason.

veryintrigued

Implications are:

You'll get less interest.

Thrugelmir

Savers have no entitlement to risk free returns. 

AlanP_2

It has been covered quite a few times in various threads but basically it's Supply & Demand - nobody wants to borrow a lot of money so interest on loans is quite low hence interest on savings is low. It's the same across developed economies across the globe. Bear in mind inflation is low, by traditional standards over the last 50/60 years as well, and savings have never been about paying substantially more than inflation in general apart from a few amount limited / loss leader offerings.

More complicated under the hood I know.

As for NS&I, well if the Gov't can borrow at lesss than 1.16% elsewhere why should they pay more? At the end of the day your savings in NS&I are part of Gov't borrowing and the national debt so logically why should taxpayers pick up a higher bill than they need to? Think of it like you remortgaging to a better rate or switching to a 0% credit card by the Gov't.

solidpro

bradders1983 said:

The BoE base rate is 0.1%, the lowest in history, and there is talk of this being cut to zero or even negative.

In a nutshell, that is your reason.

Think the post was more about the unknown outcomes rather than the BOE base rate...

CEON44

Its all part of the overll strategy to get you spending. At this time of crisis money lying in the bank is of no use to anybody. They are trying to force you to spend to help the economy. Effectively you are losing money now leaving it in the bank. Inflation is higher than interest rates so every year your hard earned savings are worth less. Although inflation is also falling mainly due to the virus. 

steampowered

If you are saving for the long term, you should really consider opening a stocks & shares ISA and investing in a global stock market tracker fund.

If you keep money in a savings account for a long time period, you are going to be losing capital to inflation.

 Why interest rates are so low is a complex question, but it has a lot to do with the fact that governments and institutions like banks are able to borrow at record low interest rates. They simply don't need your money. On the other hand the stock markets do need your money and are still generating good returns so listen to the market incentives put in front of you !!!!

RG2015

@Anabee,

The NS&I Income Bond reduction from 1.16% AER to 0.01% is much more dramatic than most previous recent rate reductions.

However, others banks' reductions are more modest. The Coventry double take launched at 1.20% and a few days later was reduced to 1.10%. The three sites below show that there are still some relatively decent rates available.

https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

https://moneyfacts.co.uk/

https://savingschampion.co.uk/best-buys

Johnnyboy11

Another way of looking at NS&I is that the Government are going to spend 2% (inflation) of your money for you every year, until it's all gone, unless you do something about it...

Albermarle

It has to be said though that the behaviour of NS & I has been a bit bizarre. Have a market leading rate , draw in so much money that their admin system was struggling to cope and the reduce it to virtually nothing , causing a big outflow, more admin chaos etc .Why not just stem the inflow in the first place by being around 0.7%?
Best bet at the moment for savings is to grab one or two year fixed rates when they briefly pop up . Currently these rates are higher than inflation .