Should there be a legal minimum interest rate for fixed rate accounts, for NS&I at least?

cricidmuslibale

Assuming as I am a very low interest rate environment for a long time (considerably lower than we've even had so far), we will all be able to find out before too long, especially after huge NS&I and big bank rate cuts, whether or not the general public, not just the committed savers, can be bothered to save very much, if at all, in the months ahead. My educated guess is that 0% savings rates, if that's what's on offer, will not encourage sufficient members of the general public to save enough for their future needs. Obviously I hope I'm wrong but I doubt very much that I am.   

wmb194

Thrugelmir said:

wmb194 said:

Thrugelmir said:

EdGasketTheSecond said:

Thrugelmir said:

EdGasketTheSecond said:

Thrift and saving should be rewarded.

Reward should come from taking a risk. 

So hard work and saving shouldn't count for anything then? What you manage to save up should be lost to inflation unless you gamble with it? Doesn't sound right or desirable to me but its where we are.

Savers are indirectly lending money to another party with zero risk. Someone has to pay the cost of administration and / or default.  

Re lending to banks and building societies, it might be low risk but you are lending your money to a profit seeking business so why shouldn't you take a cut of the action? 

That's called being a shareholder.  For savers there's no risk. As deposits are covered by Government guarantees. The levies for which are built into the rates charged to those who borrow from the banks. 

At the moment banks are forbidden from paying dividends to shareholders. In order that banks preserve capital. Insuring against the worst possible outcome. As a consequence bank share prices fell. Many peoples pension savings hold bank shares. 

Savers are effectively wrapped in cotton wool. Though they might not realise or appreciate the fact. 

No, it isn't, it's being called a debt holder. Sheesh.

The FSCS scheme doesn't hold an explicit government guarantee.

bowlhead99

wmb194 said:

Thrugelmir said:

wmb194 said:

Thrugelmir said:

EdGasketTheSecond said:

Thrugelmir said:

EdGasketTheSecond said:

Thrift and saving should be rewarded.

Reward should come from taking a risk. 

So hard work and saving shouldn't count for anything then? What you manage to save up should be lost to inflation unless you gamble with it? Doesn't sound right or desirable to me but its where we are.

Savers are indirectly lending money to another party with zero risk. Someone has to pay the cost of administration and / or default.  

Re lending to banks and building societies, it might be low risk but you are lending your money to a profit seeking business so why shouldn't you take a cut of the action? 

That's called being a shareholder.  For savers there's no risk. As deposits are covered by Government guarantees. The levies for which are built into the rates charged to those who borrow from the banks. 

At the moment banks are forbidden from paying dividends to shareholders. In order that banks preserve capital. Insuring against the worst possible outcome. As a consequence bank share prices fell. Many peoples pension savings hold bank shares. 

Savers are effectively wrapped in cotton wool. Though they might not realise or appreciate the fact. 

No, it isn't, it's being called a debt holder. Sheesh.

The FSCS scheme doesn't hold an explicit government guarantee.

Treasury have guaranteed to FSCS that FSCS can borrow unlimited funds to fulfil compensation claims against failed firms until the FSCS can get the money back from financial service industry businesses through levies, no? I thought that was in one of the acts or regulations.  May be wrong though.

Thrugelmir

wmb194 said:

Thrugelmir said:

wmb194 said:

Thrugelmir said:

EdGasketTheSecond said:

Thrugelmir said:

EdGasketTheSecond said:

Thrift and saving should be rewarded.

Reward should come from taking a risk. 

So hard work and saving shouldn't count for anything then? What you manage to save up should be lost to inflation unless you gamble with it? Doesn't sound right or desirable to me but its where we are.

Savers are indirectly lending money to another party with zero risk. Someone has to pay the cost of administration and / or default.  

Re lending to banks and building societies, it might be low risk but you are lending your money to a profit seeking business so why shouldn't you take a cut of the action? 

That's called being a shareholder.  For savers there's no risk. As deposits are covered by Government guarantees. The levies for which are built into the rates charged to those who borrow from the banks. 

At the moment banks are forbidden from paying dividends to shareholders. In order that banks preserve capital. Insuring against the worst possible outcome. As a consequence bank share prices fell. Many peoples pension savings hold bank shares. 

Savers are effectively wrapped in cotton wool. Though they might not realise or appreciate the fact. 

No, it isn't, it's being called a debt holder. Sheesh.

Creditor. Sheesh. 

jimjames

cricidmuslibale said:

Sailtheworld said:

cricidmuslibale said:

John_ said:

cricidmuslibale said:

John_ said:

cricidmuslibale said:

Newbie here! Is it just me that thinks this or does anyone else agree that it really isn't morally right at all for financial institutions, especially a state savings provider like NS&I, to be offering very low interest rates (less than 0.5% AER) on fixed rate accounts? Surely if you're asking people to tie their money up with you for a year or more, often with no withdrawals permitted, there should as a fair return for this be a legal minimum interest rate paid on these savings, say at least 0.5% AER! All opinions welcome, of course.

No, it’s an absolutely ludicrous idea. If you don’t find the interest rate attractive then don’t save with them.

You may disagree with me wholeheartedly, that's absolutely fine, but to call my suggestion ludicrous is a little bit strong surely!

I don’t think so, it’s not a million miles from saying that a doctor should have a legal requirement to make you well.
Where would the money come from to pay you this interest? Who would you be taking it off? 

In NS&I's case at least, when you are only talking about a minimum of 0.5% for fixed rate accounts that can easily come from the vast amount of money NS&I are now saving from paying only CPI plus 0.01% rather than RPI plus 0.01% on recently renewed Index Linked Savings Certificates! CPI is nearly always significantly lower than RPI and is currently only 0.7% (if I remember correctly). 

You want the taxpayer to provide a legal minimum interest rate. You've just found a different way of saying it.

The root cause of the 'problem' is you want to lend your money out at an interest rate which no borrower is willing to pay. Interest rates have been on a downward trajectory for decades - it shouldn't really be a surprise that they ended up (if it is the end) around zero.

It is a pretty sorry state of affairs when no borrower is willing to pay an interest rate of merely 0.5%! For goodness sake what is the world coming to!? Not very long ago at all 0.5% would have been rightly regarded as an absolutely derisory rate to be paying for a fixed rate savings account where you have guaranteed the borrower use of your capital for usually a minimum of a year! Just because interest rates have been on a downward trajectory for decades doesn't make it either right or at all acceptable for this to continue so that there is absolutely no incentive for anyone to save whatsoever!         

Problem is the minor matter of administration so the borrower can't actually borrow at the rate that the saver gets. Even with a 1% margin that gives a 1.5% lending rate which is above the rate that some banks are currently offering for mortgages.
Based on a previous reply mentioning pensions and property I'm assuming that you are not retired or near to being so in which case doing some research on investment options would definitely be worthwhile. www.monevator.com is often suggested as a good place to start

EdGasketTheSecond

John_ said:

EdGasketTheSecond said:

John_ said:

EdGasketTheSecond said:

Look you don't understand do you? The FED and central banks are forcing low interest rates and doing QE; it is NOT the free market behaving as it should.

The fed has zero to do with the rates that the OP is getting on his GBP savings.

I suppose that being unemployed has given you time to pick up some bits and pieces from the internet, but that’s no basis for a real understanding.

May I suggest you put the time and effort into finding work instead?

That is where you are wrong my friend. Where the FED goes, others follow.

When did markets turn around in March? Was it the B of E. or the FED that caused the turnaround?

Obviously if the FED decides on near zero interest rates then the UK is not going to be able to have any 'normal' interest rate as the pound would be far too strong in that scenario. The financial world is all interlinked and the FED sets the general tone.

May I suggest you put the time and effort into learning some basic macro-economics instead of researching the employment status of posters?

I’m an interest rates trader. I earn my living by being an expert in macroeconomics and interest rates.

I’ll give the ramblings of a man on the dole due weight though.

Funniest thing on this thread. If true, you need to go back to school.

coastline

What is really remarkable is that what we thought was a short-term change in monetary policy to deal with the financial crisis seems to have turned into a new normal. Record low interest rates never went away. The QE programme was not unwound, it was expanded. At the same time, the interest payable on government debt continued to fall.
Ultra-low interest rates have huge consequences for the country and its citizens - Institute For Fiscal Studies - IFS

Another_Saver

cricidmuslibale said:

Assuming as I am a very low interest rate environment for a long time (considerably lower than we've even had so far), we will all be able to find out before too long, especially after huge NS&I and big bank rate cuts, whether or not the general public, not just the committed savers, can be bothered to save very much, if at all, in the months ahead. My educated guess is that 0% savings rates, if that's what's on offer, will not encourage sufficient members of the general public to save enough for their future needs. Obviously I hope I'm wrong but I doubt very much that I am.   

There is no evidence that higher interest rates make more people more likely to save. You are not understanding the economics of finance. People save because of the development or presence of a banking system, because of the necessity of accumulating wealth for security, as a side-effect of an ageing population or spare income.People borrow mainly for mortgages, consumer spending, business loans etc. Government can influence through a central bank rate to guide the market rates a certain way deemed desirable for their policy aim. The interaction of supply, demand and government determines market interest rates.

If you compare interest rates to the national savings rate (proportion of income that is saved) historically you may see some correllation, that can be explained by the growth of wealth relative to income since both those numbers peaked in the 70s.

Falling rates will reverse necessarily when Boomers start divesting into retirement, the peak year of birth was 1964, most people retire at ~State Pension Age implying ~2030 as an approximate inflection point. But this is complicated as savings can go into equity, property and commodities as well as cash and debt-based instruments - you would expect de-risking more into cash to and through retirement so the savings glut causing these low rates might be around for even longer. But the present is particularly strange as the demand for credit has dried up, some less secure people are drawing on savings, many secure people have nothing to do with their income but to add to savings, the government is implementing QEII (Covid edition), and those born by 1965, i.e. a majority of Boomers are now able to access pensions and retire early if they can.

Some define Boomers as 1946-1965, I am talking specifically about the clearer, bigger and longer boom over the 1960s.

cricidmuslibale

coastline said:

What is really remarkable is that what we thought was a short-term change in monetary policy to deal with the financial crisis seems to have turned into a new normal. Record low interest rates never went away. The QE programme was not unwound, it was expanded. At the same time, the interest payable on government debt continued to fall.
Ultra-low interest rates have huge consequences for the country and its citizens - Institute For Fiscal Studies - IFS

Thank you! This is a really good article which basically underlines, in a much more erudite way that I'm capable of, the points I've been trying to make and adds many more pertinent observations as well!

cricidmuslibale

"There is no evidence that higher interest rates make more people more likely to save."  Really??? I find this very hard to believe tbh. It certainly contradicts my experience, that of many people I know who only tend to save when they think it's worth their while doing so and everything I've ever read on this subject including what is written in the article very kindly provided by coastline above.