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

Thrugelmir

ColdIron said:

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

Remember when the mortgage went up by 1% for 4 consecutive months to 14%. We used to walk around Sainsburys with a calculator as the budget was so tight. No resorting to credit cards back then. If you didn't have it you didn't spend it. 

eskbanker

Thrugelmir said:

ColdIron said:

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

Remember when the mortgage went up by 1% for 4 consecutive months to 14%. We used to walk around Sainsburys with a calculator as the budget was so tight. No resorting to credit cards back then. If you didn't have it you didn't spend it. 

You could afford a calculator and to shop at Sainsburys?

We used to DREAM of....

<resists urge to post Four Yorkshiremen sketch script again>

danlightbulb

Prism said:

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.

You say that but I had my pension fund statement through yesterday and that's invested in some funds through some kind of managing provider, and it only returned 2.8% for the year to September 2019 (for some reason it's a year behind too, not sure why). That isn't very good. I'd try and change the fund mix away from the default but I don't know what I'm doing and am liable to make things worse for myself. I earn a decent salary (live alone though) and put a total of 16% into the pension (including the company contribution) but that growth is rubbish and barely keeping up with inflation.

Apodemus said:

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.

Fair point, I think you're right in premise but 'willingly' is perhaps an unfair word to use as no-one truly knows all the implications. All this 'stuff' we have now is meant to make our lives better, does it?

Thrugelmir said:

ColdIron said:

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

Remember when the mortgage went up by 1% for 4 consecutive months to 14%. We used to walk around Sainsburys with a calculator as the budget was so tight. No resorting to credit cards back then. If you didn't have it you didn't spend it. 

Whilst this is correct its also an unfair comparator.

You could have a non-skilled factory job in the 80's, your wife could not work and be raising the kids, and you could still buy a modest house or get a council house for life (which you'd later benefit immensely from buying).

If you were in any way skilled, then a single salary could get you a very nice house indeed.

On the job you were in when you bought a house, could you afford that same house now on the equivalent job today. The answer for most would be no.

Yes people had little free cash compared to now I do agree with that and that period where interest rates went crazy certainly did bite people. But apart from food there was not alot to spend it on anyway! And that pain has been rewarded now many times over. That won't happen again.

Its gone crazy now, both what can be spent and the amounts of money some people seem to have at their disposal. A good many still live hand to mouth however.

Albermarle

and it only returned 2.8% for the year to September 2019 (for some reason it's a year behind too, not sure why).

Most pensions are on line so should be easy enough to get an up to date valuation . Looking at it a year out of date , pre Covid etc tells you very little.

I don't know anyone who spends £800 on a phone 

Of course most young people do not buy phones , it comes as part of an expensive 24 month contract .

If you did buy one , a modern I Phone ( not the most expensive one though by a long way ) costs about £800.

NottinghamKnight

Thrugelmir said:

ColdIron said:

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

Remember when the mortgage went up by 1% for 4 consecutive months to 14%. We used to walk around Sainsburys with a calculator as the budget was so tight. No resorting to credit cards back then. If you didn't have it you didn't spend it. 

We walked round Sainsburys with a calculator on Monday evening, checking spend against the discount voucher minimum spend.

CEON44

Stenwold 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 

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.

Not sure where you live but every kid I know over 15 has a £1000 phone and various pairs of designer trainers

Yellowvest23

The high inflation of the 70s / 80s applied to the whole of your expenditure  but the high interest rate only applied to what you could save which would be far less for the vast majority.So in real terms the people then had it much worse.
The difference between now and then is the attitude that exists today of wanting everything  immediately and borrowing to get it.
The opinions in this thread that so many are happy to go into debt helps the economy is another story.

NottinghamKnight

Interest rates on personal savings accounts are unlikely to go negative but deflation is a definite possibility, which could mean that returns for people would actually be positive, unusually. Far wider implications of deflation of course, as Japan experienced in the nineties.

EdGasketTheSecond

There will be some initial deflation although not much in essentials like food. Then it's inflation/hyperinflation I'm afraid. It's the gov'ts plan to inflate away the debt problems they have created though they probably aren't banking on hyperinflation but there is a good chance of that which will obliterate cash savings.

thegentleway

Why?
Interest rates is one of the economic levers governments can pull to stimulate/slow the economy. The premise is that lowering interest rates encourages people to spend/invest and helps the economy recover. Conversely increasing the rate puts the brakes on spending/investing and encourages saving.
Future implications?
Maybe we realise our current capitalist economic engine is great at producing wealth for the wealthy but not maximising wellbeing or conserving our planet. We realise these things are way more important than profits so we find a way to price them into the markets. And we live happily ever after. Or the status quo: people moan about interest rates, economy eventually recovers, interest rates go up, people moan about interest rates being too high on their mortgage, economy crashes, interest drop, and the cycle continues...