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

ANGLICANPAT

What effect if any on the stock markets would there be if soon  theres a huge surge of people  who ,not needing to spend, and nervous of another crash  have been  stockpiling  their cash  in bonds, isas  for the last few years,  decide  in the  light of zero interest that they may as well  stuff  a large % of it into  global trackers  .  

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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. 

I think the rate went up to 15% a day after my parents got their first mortgage.  I remember going to bed and remembering how worried they looked.  
I took out my first mortgage in 2010, and was expecting interest rates to be back at their "normal" rate of 6% by now.  I took out my second mortgage in 2016 (bigger house), and rates were about .5% higher than 2010.  Not entirely expecting to be paying 6% on a mortgage between now and 2041 (when it ends).  
Funny enough, I saw an old "Leeds" advert with George Cole today - interest rates on savings at 9.25% (after tax).  Thing is, these ads were from a time when my working parents could only dream of buying their council house (heavily discounted) and, like you say, walking around the shops with calculators.  We didn't have a landline until 1989 (dad got promoted to the office) when I was 13.  

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EdGasketTheSecond said:

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.hyperinflation but there is a good chance of that which will obliterate cash savings.

Not saying you are wrong, but I remember similar predictions in 2008.  The financial crisis was global, as is this crisis.  I'm not expecting massive inflation, and I think that we will see greater efficiency from many companies (unfortunately, resulting in many of us needing to find new employment).  

VXman

Thrugelmir said:

Savers have no entitlement to risk free returns. 

While true it is a little harsh for those of us how are in the later years of our life, have a fixed income but have saved all our lives for a good retirement. Now I struggle to know what to do with my savings, which are vital for an income in the next 20 years.

I would have loved the current situation 20/30 years ago when I had debts!!

VXman

Stenwold said:

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

1. Yes it is a bad thing. It is unsustainable. One day it will have to end or the world will.
2, £800 for an i phone is fairly mid priced. £1100 is possible. Not necessary of course. My Xiaomi phone does everything an iphone does for £120. (Well, everything I can think of and more than I need to use)

Takedap

Yellowvest23 said:

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.

The high inflation of the 70s & 80s was actually a good thing for people holding mortgages.   You could take out a large loan knowing that although it might be a struggle in the early days, it soon became much easier due to relatively large yearly pay increases.  Nowadays, repayments start high & continue to be a high percentage of your wages forever.

norsefox

EdGasketTheSecond said:

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.

That's a stretch.  Hyperinflation is only ever seen in countries that a) print huge amounts of money; and b) have a serious supply problem (see post WW1 Germany, Venezuela, Zimbabwe).
The UK, EU, and US have been printing money for over a decade and still can't achieve their 2% inflation targets.  Predictions of hyperinflation are built on a very outdated belief system.

Stenwold

VXman said:

Stenwold said:

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

1. Yes it is a bad thing. It is unsustainable. One day it will have to end or the world will.
2, £800 for an i phone is fairly mid priced. £1100 is possible. Not necessary of course. My Xiaomi phone does everything an iphone does for £120. (Well, everything I can think of and more than I need to use)

I'm not going to disagree with you there, however until we find a way for it to end without complete financial collapse, consumerism is here to stay for the good of the economy.

Yes, £800 is nowhere near the top end of phone prices, but the point I was making (or trying to) was that younger people don't spend that much on a phone - you can get good phones for relatively cheap monthly payments nowadays. It's not true to suggest that the younger generation aren't financially sound because of their spending habits (which was the original point I was replying to).

steampowered

Takedap said:

The high inflation of the 70s & 80s was actually a good thing for people holding mortgages.   You could take out a large loan knowing that although it might be a struggle in the early days, it soon became much easier due to relatively large yearly pay increases.  Nowadays, repayments start high & continue to be a high percentage of your wages forever.

Exactly. This is a super important point.

Lots of people on here playing the fiddle about how hard it was to pay their mortgage back in the 80s when interest rates were 15%. Conveniently forgetting that high inflation and high pay rises paid off much of the mortgage for them. A few years of that and most of the principal of your debt has inflated away.

Prism

danlightbulb said:

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.

I would suggest finding out what funds you are invested in through your pension. You can usually take some control over the investments, or at the least keep an eye on what you are invested in. Its very much based on what you invest in. My pension return for the year to September 2019 was around 8% and from then until now a year later around 15%. There was a stock market correction at the end of 2018 which would have effected returns greatly.

One year is much too short a time to take anything from performance. Pension being long term things are far more interesting over 20+ year time frames where you might expect them to return 5%+ per year, again depending what you are invested in.