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

phillw

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

QE is to kickstart the economy, if they then guaranteed a savings interest rate then it would not have the effect QE is supposed to have.

Rollinghome

Thrugelmir said:Reward should come from taking a risk. 

If you are suggesting we should all get down to Kempton Park then I think you should reconsider. 

naedanger

Another_Saver said:

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.

Fair enough. I am in general agreement with what you are saying, but can see why it is a well discussed thread.

cricidmuslibale

grumiofoundation said:

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.

If NS&I hadn't severely slashed virtually all of their interest rates (both variable and fixed) on Tuesday, having 'pretended' to support their savers back in the spring by holding rates that were a little too high compared to their competitors for a few months only, i.e. not going ahead with originally planned, much more modest interest rate cuts to their variable rate accounts (which I strongly believe they should have done; the savings market would be far less volatile now if they had), then yes I would have been very willing to save money in a legally mandated 0.5% fixed rate savings account with NS&I at some point in 2021 when I expect most fixed rates available to be even lower than 0.5% very sadly. It had been up to this year my natural preference to save in NS&I's fixed rate accounts (if on general sale at the time) rather than those of other savings providers. However all that has changed now and NS&I will have to clearly show to me (and others) that they are not going behave as duplicitously as they have this year before I would even consider saving any more money with them again!

I have saved money with NS&I for more than 20 years and they have never ever in my experience treated their savers, both long-term and short-term, anywhere near as badly all round as they have this year! It is not just the two-faced approach to interest rates that has shocked me - NS&I have always been consistent and reasonable in the past - it is also the great difficulty there has been this year in communicating with them, especially by phone, where a wait of 40 to 60 minutes to speak to a customer service advisor has been quite common. And then they have also decided for some bizarre reason to complete redesign their website which is now nowhere near as clear and easy to use as it was before! What on earth were they thinking about when they decided to do this? If it ain't broke don't fix it!
  

cricidmuslibale

"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."

My argument actually is that more people will be inclined to save when interest rates are higher. Very committed savers will still be inclined to save at the very lowest of interest rates but not all savers by any means fall into this category. Quite a lot of people will bother to take the time and effort to save money (that would otherwise be either (a) left languishing in a current account, (b) invested in the stock market without necessarily having done the homework required to invest sensibly or (c) spent on voluntary items that are not really needed) if interest rates are at least reasonable enough to make it worthwhile for them as part-time savers who frankly can't be bothered wasting their precious time chasing tiny interest rates. You can hardly blame many people for taking this approach to saving at the moment can you!

If savings interest rates head further downwards towards 0% (please No!) then a fixed rate account of 0.5% is going to seem at least reasonable and may, in this nightmare scenario for savers, be enough to persuade both full-time and part-time savers to put in the time and small amount of effort required in order to save in this 0.5% account. This year has been very different because of COVID - more people have had the time to save (if they've had the available funds) because of not going out to work - but in most recent years before 2020 research has tended to show that not nearly enough people of working age have been been saving enough in order to live comfortably in old age. Ironically NS&I's own surveys in the last few years have highlighted this problem.

I doubt that less committed savers were 'saving like mad' when fixed rates were 2% a couple of years but I would be very surprised if it at least some of them didn't take advantage of e.g. NS&I's one-off (for the year April 2017-2018) 3-year Investment Guaranteed Growth Bond paying 2.2% because that bond was promoted by no less than the Chancellor of the Exchequer in 2017! Also from December 2017 to the start of March 2020 NS&I was also offering its 3-year Guaranteed Growth Bond at 2.2% without the £10k investment limit there now is and with the option of closing the bond early subject to 90 days loss in interest (I think) so that no doubt will have encouraged a good number of 'part-time savers', who don't see the point at all of saving in the present very low interest rate climate, to take the required time and effort to save back then.

Yes the most important thing is always how much you can and do save but, for the good number of savers who are not as committed as those in this forum clearly are, a reasonable interest rate on offer really can be the difference between taking the time and effort required to put one's money aside in a savings account for 'a rainy day' and simply not bothering to do so!

John_

EdGasketTheSecond said:

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.

And you need to get back into work, yet here you are acting superior rather than working to be able to support yourself.

Not your fault though, I assume, the jet propulsion lab which you ran just had their funding pulled?

cricidmuslibale

Sailtheworld said:

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.

My point is not that there's an inverse relationship between interest rate and saving rate, it is rather that the lower interest rates are in general the fewer people will take the (small amount of) time and effort required to save very much if anything at all. Committed savers will tend to put the effort into saving no matter how low the interest rate is (unless it turns negative) but many more part-time savers who may well bother to save at least some of their money if the interest rate is low but not unreasonable at all in 'normal circumstances' (an interest rate of say 1 to 2% on average) are likely not to bother at all with saving with interest rates of less than 0.5% on offer! And these very low rates indeed are unfortunately where most interest rates appear to heading inexorably towards right now!

NottinghamKnight

cricidmuslibale said:

Sailtheworld said:

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.

My point is not that there's an inverse relationship between interest rate and saving rate, it is rather that the lower interest rates are in general the fewer people will take the (small amount of) time and effort required to save very much if anything at all. Committed savers will tend to put the effort into saving no matter how low the interest rate is (unless it turns negative) but many more part-time savers who may well bother to save at least some of their money if the interest rate is low but not unreasonable at all in 'normal circumstances' (an interest rate of say 1 to 2% on average) are likely not to bother at all with saving with interest rates of less than 0.5% on offer! And these very low rates indeed are unfortunately where most interest rates appear to heading inexorably towards right now!

But the government want people to spend their money not save it, to encourage economic recovery. savings ratios have shot up due to Covid, the problem is that those with money are saving and not spending. Rather than save they would prefer investing if not spending as that again would encourage economic growth and development. Savings rates have a limited impact on the amount saved by many people. 

Thrugelmir

Rollinghome said:

Thrugelmir said:Reward should come from taking a risk. 

If you are suggesting we should all get down to Kempton Park then I think you should reconsider. 

Of course not.  To grow the economy money needs to be invested into projects and enterprises which have potential. In doing so there's varying degrees of risk taken. As some will fail that's a certainty. Everybody wants the cherry without baking the cake first.  

Perhaps what's required is a return to the mutual savings model. Where the enterprise isn't run purely for the management and shareholder's gain and profit. 

snowqueen555

NottinghamKnight said:

But the government want people to spend their money not save it, to encourage economic recovery. savings ratios have shot up due to Covid, the problem is that those with money are saving and not spending. Rather than save they would prefer investing if not spending as that again would encourage economic growth and development. Savings rates have a limited impact on the amount saved by many people. 

Government seems to want it both ways. They want us to spend now, but have ben complaining for years that people do not save enough.

It is natural for individuals to look out for themselves. I for one am not inclined to spend money frivolously to support the economy when I could be unemployed sometime soon.