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

cricidmuslibale

jimjames said:

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

Mortgage holders have, to be fair, been prioritised over savers for quite some time now. Hence we now have ultra low mortgage rates historically speaking. This situation may be the 'new normal' but it is not normal or balanced in the traditional economic sense and it cannot go on forever! Otherwise savers will understandably get more and more cheesed off and will eventually collectively lobby successfully to redress this situation. 
Thank you very much for the suggestion and website mentioned in your 2nd paragraph. You're quite right, I'm neither retired nor anywhere near to being so. 

grumiofoundation

A question - if NSandI offered this legally mandated 0.5% fixed rate savings account would you save your money in this or would you save in the numerous fixed rate accounts offering higher interest rates than this? 
https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#1yrfixtable


Your argument seems to be people will be more inclined to save when interest rates are higher. 
For the people who do actually take this attitude (no comment on how widespread this is) is 0.5% going to be 'enough' to incentivise them to save?
Were they saving like mad when fixed rates were 2% a couple of years ago?

As has been mentioned multiple times the interest rate available should not be the motivation for saving, the most important thing is how much you can and do save.

EdGasketTheSecond

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.

Milton Friedman said 'There is nothing so permenant as a temporary government program'; very true in the case of QE and artificially low interest rates. Same has been true when Nixon 'temporarily' took the dollar off the gold standard.

Sailtheworld

cricidmuslibale said:

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!

It says there's a willingness to lend record amounts of money at record low interest rates. It doesn't support your point that there's an inverse relationship between interest rate and saving rate.

Another_Saver

cricidmuslibale said:

"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.

Well you know what they say about facts and beliefs. It seems that even after I have already explained what is going on with rates, the debate that "it's the government", is still ongoing...

naedanger

Another_Saver said:

cricidmuslibale said:

"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.

Well you know what they say about facts and beliefs. It seems that even after I have already explained what is going on with rates, the debate that "it's the government", is still ongoing...

But as you have rightly said the government does influence rates. Therefore it is not really surprising people debate that "it's the government".

And the government could easily offer a guaranteed minimum rate (especially on capped amounts of investment) on national savings and therefore it is quite legitimate to debate whether they should do so. (My own view is that they shouldn't as I believe the costs of doing so would outweigh the benefits.)

Another_Saver

naedanger said:

Another_Saver said:

cricidmuslibale said:

"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.

Well you know what they say about facts and beliefs. It seems that even after I have already explained what is going on with rates, the debate that "it's the government", is still ongoing...

But as you have rightly said the government does influence rates. Therefore it is not really surprising people debate that "it's the government".

And the government could easily offer a guaranteed minimum rate (especially on capped amounts of investment) on national savings and therefore it is quite legitimate to debate whether they should do so. (My own view is that they shouldn't as I believe the costs of doing so would outweigh the benefits.)

What the OP isn't getting Is that rates follow savings, savings don't follow rates. The OP thinks that higher rates make people save - they don't. Higher rates are only possible when the savings supply shrinks. Regardless of their beliefs, I can find no evidence or credible theory to support their assertion.
Savings can move around to competitively find the best rates just as borrowers do, but it is still a singular supply and demand system with a pool of supply and a pool of credit opportunities.
Premium bonds already offer a competitive, but not guaranteed minimum rate upto a fixed amount.
Government manipulation rarely works and always has consequences, from Thatcher's stupidly high rates to counter inflation, to the wibble wobbles of the post dot com years that helped accentuate the GFC.

EdGasketTheSecond

No the governments are in control at the moment 'printing' currency and artificially holding rates at near zero. Also manipulating the yield curve on bonds. Rates at the moment have nothing to do with savers and borrowers, only the central banks.

Actually gov'ts can't afford to let interest rates find their natural level as anything above 2% now would crash the economy and bankrupt the gov'ts who could not then afford their debt. They will inflate their way out of this, well try to, and it will be regular savers who lose out.

phillw

cricidmuslibale said:
Mortgage holders have, to be fair, been prioritised over savers for quite some time now. Hence we now have ultra low mortgage rates historically speaking. 

I'm not sure that mortgage holders are the target for the low interest rates.

phillw

Another_Saver said:
Savings can move around to competitively find the best rates just as borrowers do,

It's generally easier for savers to move around. If you keep applying for credit everywhere quickly you'll find yourself being turned down. You can open as many savings accounts as you want.