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

NottinghamKnight

snowqueen555 said:

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.

Not really, governments have been encouraging spending as we have been a service based economy for decades, as evidenced by the balance of payments deficits that accrued.  The difficulty is that the rich will save when they want the poor to save to reduce reliance on benefits, the benefits system hasn't been good in promoting people out of poverty. They have had some success introducing auto enrollment for pensions but that's a long term project and is only really trying to address the wholesale withdrawal of db pension schemes outside the public sector. Government approach hasn't varied dramatically over those decades be they labour or tory. 

grumiofoundation

cricidmuslibale said:

"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. Yes I know thats why I said that? Very committed sensible 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 (should be a not here?) 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. Only c) really matters in the context of someone saving instead of spending. You can hardly blame many people for taking this approach to saving at the moment can you! Well I can if I want, but no I don't really blame people for not saving ( I think they are reckless and shortsighted) but to be honest if everyone saved 'properly' the economy would be in trouble and prices would be a lot higher (e.g. houses) - I do however blame people for complaining about not being able to afford something because they didn't save, or blaming low interest rates for not bothering to save.

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. Of course it won't - how many people had money in a current account or spent instead of saved when interest rates of 2+% were available, or how when you can easily get >5x the base rate elsewhere. 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. So when interest rates were higher people didn't save, whether though laziness or because they couldn't - in both cases how does your 0.5% help?. 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 on that we agree 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! Most people in the country in 2017 wouldn't have been able to name the chancellor let alone would choose to open a 3 year savings account because he promoted it. 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. No it won't - these people don't actually exist - no-one was saving sensibly in 2017 but now are spending because "oh interest rates are low now".

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! Whether someone can be bothered to chase low interest rates is fair enough. But if someone won't save money (NOT switch savings accounts you seem to maybe conflate the 2?) because interest rates are too low for then frankly they are an idiot. 

Anyone who uses low interest rates as an excuse for not saving is doing exactly that - making excuses.

If someone (lets call him joe saver) is not saving at this moment now and the reason they give (although in reality >99% likely is an excuse as above) is interest rates are too low - how will your proposed 0.5% account help again?

It won't help joe saver today because joe saver can get >0.5% and that isn't good enough for joe.

So as we seem to have (almost) agreed on Joe saver wasn't saving when rates were 2% because if it was Joe would still be saving now. So interest rates rise - Joe still don't save.

Interest rates drop to 0.1% across the board - will Joe now save like the clappers because he can get 0.5%. I can't see why he would since 0,5% is available now and Joe ain't using that. 

If rates drop to -0.1% across the board (savings rates won't but lets imagine they do) - will Joe saver now save?

N. B. - by save I mean put money away each month and/or avoid spending money already saved. 

You seem to have decided on your argument that most people won't save because interest rates are low. In that case, selfishly, you could embrace this, don't be like Joe saver, and save as much as you can knowing you are becoming richer than your equally paid peers and will therefore be able to far outspend them when needed. 

If you want a perfect example of how higher interest rates don't encourage people to save - look at what a relative damb squib the lifetime ISA was. I have had people tell me LISA 'wasn't worth it' when they could have got £1000s free from the goverment?

csgohan4

Seems the OP thinks their entitled to high interests rates and wants the tax payer to fund this

if you want to grow your money much more than the interest rates being offered, put it in a fixed rate account, PB or in  a passive investment tracker and leave it

strawb_shortcake

The argument for a mandated minimum interest rate seems to be more focused on what people do in normal times, rather than the actions people may take as a result of the pandemic.
Those with precarious finances and insecure jobs may be more inclined to save regardless of the interest rate as they can see the very real benefit of having an emergency fund.
Those with more secure jobs may choose to spend a bit more but from what I've seen with friends, family and colleagues is that this year's holiday fund has been spent on the home, so it's more a case of them redirecting funds.

The government already offer help to save accounts to encourage the less likely to save, to save and the returns are far greater than anything on the high street. I wasn't the intended target market for this scheme but due to legacy benefits it's one my Husband and I  can take advantage of. 
When my children were born their CTF had a bonus interest rate of around 6% I think this was 2-2.5% above the base rate, i wasn't in a position to save very much at this time so never took advantage of higher interest accounts.

ossian

No.  Next question.  Your reward is knowing that your money is safe.  The market knows that in an era of low and likely diminishing returns after overheads there is little left to support interest. 

The government doesn't want NS&I killing the private banks so NS&I has to be careful with the rates they offer.  The banking sector is essential to the prosperity of our economy.  It funds nascent ventures which provide economic growth.

Yes I'd love NS&I to pay out more but the cuts in interest/prize rates are understandable and farer overall.  
The government wants money put to work as we need the economy to flourish for everyones benefit whether shareholders or not.
Lastly, investing isn't gambling.  Yes there's risk but there's risk stepping out of your front door but you don't stay inside just in case a rooftile hits you on the way out or a car hits you on route to your destination.  

Saving is still a good thing and the reward is that it gives you a buffer for unexpected expenses.  It is intrinsically rewarding.  If your savings reach a level where adding to them no longer provides sufficient benefit then you either switch the excess money to investing or spending.  After all one has to live while one can.

snowqueen555

NottinghamKnight said:

snowqueen555 said:

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.

Not really, governments have been encouraging spending as we have been a service based economy for decades, as evidenced by the balance of payments deficits that accrued.  The difficulty is that the rich will save when they want the poor to save to reduce reliance on benefits, the benefits system hasn't been good in promoting people out of poverty. They have had some success introducing auto enrollment for pensions but that's a long term project and is only really trying to address the wholesale withdrawal of db pension schemes outside the public sector. Government approach hasn't varied dramatically over those decades be they labour or tory. 

It's always been reported that the typical UK household does not have enough emergency savings, we should be saving for retirement, but also saving for other things. So yes, I do believe my point still stands. The rhetoric to me has been that the government wants us to save and spend at the same time.

masonic

snowqueen555 said:

NottinghamKnight said:

snowqueen555 said:

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.

Not really, governments have been encouraging spending as we have been a service based economy for decades, as evidenced by the balance of payments deficits that accrued.  The difficulty is that the rich will save when they want the poor to save to reduce reliance on benefits, the benefits system hasn't been good in promoting people out of poverty. They have had some success introducing auto enrollment for pensions but that's a long term project and is only really trying to address the wholesale withdrawal of db pension schemes outside the public sector. Government approach hasn't varied dramatically over those decades be they labour or tory. 

It's always been reported that the typical UK household does not have enough emergency savings, we should be saving for retirement, but also saving for other things. So yes, I do believe my point still stands. The rhetoric to me has been that the government wants us to save and spend at the same time.

The Government is only interested in people having sufficient savings and pension provisions to avoid them claiming benefits. Beyond that, it's better for them if the money is spent or invested, preferably on things that generate further tax revenues. But yes, if they could have their cake and eat it too (by getting you to save and spend your money), then I'm sure they'd want that.

AlanP_2

I look at our Balance Sheet on a monthly basis  (Investments - Savings/PBs - Current Accounts less CC balances / mortgage).

I compare the Assets (excluding Investments) with the CC balances and if the number has gone up I have increased my Savings, if it has gone down I have spent some Savings (or will have a week or so later when the CC DD goes out).

To me it has absolutely nothing to do with whether it is in an account given the title Savings or Current by a bank, it is an indisputable fact as evidenced by the numbers.

Actively making a decision on where to keep that money is where the account / asset choices are made, but until you have some Savings the interest rate on offer is of no relevance at all and in my opinion has no impact on whether people save or not.

cricidmuslibale - Are you saying that you are spending more than your income each month and hence not saving, or, are you saying that your income exceeds your expenditure (and so you are saving) but are getting veryt little retrurn on it?

phillw

cricidmuslibale said:

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.

Anyone who has the choice between saving and spending and thinks "well at interest rates so low then I might as well just waste this money" is not worth rewarding. They will likely be parted from their money in other ways regardless.

phillw

snowqueen555 said:
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.

1. This government has been in power for less than a year.
2. The amount covid 19 has affected spending, it's like your doctor telling you that you're overweight & so you tell them that you won't eat anything at all then when they say that is not healthy then you complain the doctor wants it both ways.