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

danlightbulb

Good timing for the post OP.

The more I think about it lately and the more I look back through the forums the more annoyed I get at how things are right now, not just in savings but in everything. There are alot of linked things going on here.

I was just looking back through the premium bonds thread which originates from 2007 ish I think, and seeing people posting about getting thousands per year in winnings or 6+% interest rates on their £30k.

For anyone with some savings at the time (likely a certain age group and demographic), this meant a pretty fast accumulation of wealth. If those people also had houses bought in the 90's, then they were winning there too. And don't get me started on generous final salary schemes previously available.

Its dire for anyone now trying to achieve the same. Historically those were very good times for some people of a certain age and the rungs of the ladder are now well and truly cut.

The thing is that people of a certain age have had their benefit from all the good interest rates and massive house price growth. It doesn't really matter to them anymore if savings interest is now low (its more of an annoyance rather than a financial security factor), but anyone new to this now (i.e younger people or older ones not sitting on top of historical good fortune) is genuinely having their future financial security damaged by this.

I think the fundamental problem is that there is too much money around. We are seeing the result of decades of inflation and wage growth feeding off each other in a cyclic way in combination with credit availability. Money availability has increased so far that:
a) a lot of people really do have too much (look at house prices for examples of that, and also tech gadgets like phones or computers, and other examples of lavishness are Christmas presents for kids now); and
b) this free cash means high demand/competition for any product which returns good money, resulting in a race to the bottom on these products or ideas (look at what's happened to matched betting in the last two years for an example of how mass adoption drives the returns down or the strategy to no longer be viable at all).

Anyway that's my 2c.

Albermarle

Although some good points on the plight of the youth of today, you have missed one important point .
Their keenness on  consumerism does not help them to get on the financial ladder. £200 trainers; £800 phones ; new car on lease plan etc Plus  of course the habit of eating out all the time , £3 takeaway coffees , expensive cocktails etc 

RG2015

Albermarle said:

Although some good points on the plight of the youth of today, you have missed one important point .
Their keenness on  consumerism does not help them to get on the financial ladder. £200 trainers; £800 phones ; new car on lease plan etc Plus  of course the habit of eating out all the time , £3 takeaway coffees , expensive cocktails etc 

Do you really mean "youth" of today? I am not sure the under 20s have much disposable income (other than from their parents).

If such a generalization is fair, it is more likely the mid 20s to mid 30s.

As to consumerism, that is driven by clever marketing and it not solely taken up by young people.

ColdIron

When interest rates were high they went hand in hand with high inflation and borrowing rates. My first (interest only) mortgage in the late 80s and early 90s had interest rates of 12% plus the endowment (which didn't repay the capital). That was about half my net salary. I stopped going out entirely and didn't have a holiday for 10 years

Albermarle

RG2015 said:

Albermarle said:

Although some good points on the plight of the youth of today, you have missed one important point .
Their keenness on  consumerism does not help them to get on the financial ladder. £200 trainers; £800 phones ; new car on lease plan etc Plus  of course the habit of eating out all the time , £3 takeaway coffees , expensive cocktails etc 

Do you really mean "youth of today"? I am not sure the under 20s have much disposable income (other than from their parents).

If such a generalization is fair, it is more likely the mid 20s to mid 30s.

As to consumerism, that is driven by clever marketing and it not solely taken up by young people.

It was a bit tongue in cheek as it seems de rigeur for us old 'uns to complain about the younger generation and their smashed advocado on toast .
However I think there is some truth to it, even for the under 20's . Especially spending money on eating out regularly with their friends , something almost unheard of when I was their age . Plus of course all the must have expensive gadgets . 

danlightbulb

Albermarle said:

RG2015 said:

Albermarle said:

Although some good points on the plight of the youth of today, you have missed one important point .
Their keenness on  consumerism does not help them to get on the financial ladder. £200 trainers; £800 phones ; new car on lease plan etc Plus  of course the habit of eating out all the time , £3 takeaway coffees , expensive cocktails etc 

Do you really mean "youth of today"? I am not sure the under 20s have much disposable income (other than from their parents).

If such a generalization is fair, it is more likely the mid 20s to mid 30s.

As to consumerism, that is driven by clever marketing and it not solely taken up by young people.

It was a bit tongue in cheek as it seems de rigeur for us old 'uns to complain about the younger generation and their smashed advocado on toast .
However I think there is some truth to it, even for the under 20's . Especially spending money on eating out regularly with their friends , something almost unheard of when I was their age . Plus of course all the must have expensive gadgets . 

There is truth to it but look at how dependent our whole economy is on this stuff? Look at Boris telling everyone to 'get back to work' because all the local coffee shops, transport networks etc etc are no longer profitable.

It's not necessarily young people's fault (or any individual for that matter), we have been driven this way though decades of cultural change and now its embedded.

There were hardly any pubs that did food in the 80's. Children weren't even allowed in most of them. There were no mobiles, no internet, 4 tv channels. 55" tvs and netflix didn't exist. Generally, people didn't buy £000's worth of cycling equipment, or computer equipment, or guitar/amp equipment, or scuba diving equipment (or insert whatever other hobby you can think of here).

We've been driven this way.

If young people (and other's for that matter) stopped spending on this stuff, it would massively damage our economy as has been shown the past six months where its practically been enforced.

Stenwold

Albermarle said:

Although some good points on the plight of the youth of today, you have missed one important point .
Their keenness on  consumerism does not help them to get on the financial ladder. £200 trainers; £800 phones ; new car on lease plan etc Plus  of course the habit of eating out all the time , £3 takeaway coffees , expensive cocktails etc 

Sorry, but I think that's a really lazy point of view;

1. Consumerism drives growth, which increases employment and quality of life - are you saying this is a bad thing?
2. Do you really mean the youth of today? I don't know anyone who spends £800 on a phone and £200 on trainers, let alone anyone young
3. Any difficulties the younger generations (and I mean anyone below 35/40 by this) are facing in terms of finance or housing, can in no way be laid at that generations door. Things were tough in the 70's and 80's for homeowners with high interest rates and even higher inflation, but a relatively low skilled worker could afford a house for their family and keep them fed (albeit on a very tight budget). No chance of that happening nowadays.

Prism

From my perspective the best way to accumulate wealth is the same way that it was 25 years ago when I got my first job - investing in stocks and shares. There have been some good times in the middle for cash savings and property but its pretty much always been about stocks - and it still is.

Barry_Bear

Lower rates and even negative rates are an ongoing trend. All assets are likely to yield less over the next decades. Governments will have to devalue currencies and will have to reduce debt by inflation. Equities are being pushed higher in a search for any yield.
There are implications for investors, savers and retirees.

Apodemus

I don't think we've been "driven" as you put it, we've willingly rushed headlong towards the enticing cornucopia that is on offer.