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

cricidmuslibale

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!

NottinghamKnight

The thing is that real interest rates aren't that low, ignoring QE of course. Inflation is near zero and so are no risk returns.

cricidmuslibale

NottinghamKnight said:

The thing is that real interest rates aren't that low, ignoring QE of course. Inflation is near zero and so are no risk returns.

To be honest, I can't remember savings interest rates across the board ever being lower than they are now, and they haven't really been anything but low overall since 2009! Inflation may be very low at the moment but it is very likely to rise significantly over the next few months and years partly due to the all the Quantitative Easing the Bank of England is currently engaged in. The Government may very well be planning to use inflation to lessen some of its now very considerable debt!

coastline

Posted this stuff many times before but it looks like a decade before any change. For years base rates were above inflation and you could always get a fixed rate savings account paying more.
https://www.economicshelp.org/wp-content/uploads/2012/01/inflation-interest-rates-1945-2011.png
https://www.economicshelp.org/blog/1485/interest-rates/historical-real-interest-rate/
Government really aren't doing to badly out of all this regarding interest payments.
https://www.ukpublicspending.co.uk/spending_chart_1990_2021UKb_17c1li111mcn_90t
https://www.ukpublicspending.co.uk/spending_chart_2004_2021UKb_17c1li111mcn_F1t90t
Just stick it all on the national debt and forget it. It's been a one off event and people are suffering enough. How's is going to be repaid ? Stories out in the press today about wage freeze for public sector. Why ? How is that going to make any difference in the grand scheme of things. It's like saving 50p on a 100 grand mortgage. I'm sure they'll do it all regardless.

Prism

Would you be happy to pay increased income tax to fund the extra interest that would be paid by NS&I, over and above the current low interest rate that the government borrows at?

NottinghamKnight

cricidmuslibale said:

NottinghamKnight said:

The thing is that real interest rates aren't that low, ignoring QE of course. Inflation is near zero and so are no risk returns.

To be honest, I can't remember savings interest rates across the board ever being lower than they are now, and they haven't really been anything but low overall since 2009! Inflation may be very low at the moment but it is very likely to rise significantly over the next few months and years partly due to the all the Quantitative Easing the Bank of England is currently engaged in. The Government may very well be planning to use inflation to lessen some of its now very considerable debt!

Well if you're going to look back all of eleven years then your comments could be taken as not necessarily exploring an especially wide range of historical let alone potential scenarios. Governments intent is to engineer a rise in inflation but they have been patently unsuccessful in this over the time period you've suggested. QE has failed to increase headline inflation, but simply undertaking QE increases inflation as there are more dollars/ pounds/ euros so the value of each one is reduced which is why asset prices have become so inflated. They would love some inflation but have singularly failed to achieve it and there's no prospect of them being much more successful in the near future. If you really stretch your horizons and go back to the 1970s you could have luxuriated in double figure interest rates, the problem being that inflation was of a similar level.

cricidmuslibale

Prism said:

Would you be happy to pay increased income tax to fund the extra interest that would be paid by NS&I, over and above the current low interest rate that the government borrows at?

It's my opinion yes that income tax is too low across the board right now and that it should be raised by a reasonable percentage for all taxpayers. After all, how can public services be fairly funded other more than through even more Government borrowing otherwise! I personally think that along with NI and VAT it is one the fairest and most 'honest' forms of taxation available, and for me, it is certainly a more reasonable form of taxation than e.g. Inheritance Tax which targets wealth and assets that have already been taxed at least once already!

EdGasketTheSecond

John_ 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.

Where should the money come from to pay you your rate of interest? 

By allowing free markets to determine interest rates; NOT the FED / Central Banks who are leading us into the biggest financial mess you've ever seen.

IvanOpinion

cricidmuslibale said:

Prism said:

Would you be happy to pay increased income tax to fund the extra interest that would be paid by NS&I, over and above the current low interest rate that the government borrows at?

It's my opinion yes that income tax is too low across the board right now and that it should be raised by a reasonable percentage for all taxpayers. After all, how can public services be fairly funded other more than through even more Government borrowing otherwise! I personally think that along with NI and VAT it is one the fairest and most 'honest' forms of taxation available, and for me, it is certainly a more reasonable form of taxation than e.g. Inheritance Tax which targets wealth and assets that have already been taxed at least once already!

I would disagree, I would suggest that inheritance tax should be 100% to help distribute the money supply more fairly around the the system - something like 80% of money is held by the over 50's?  Most of that is locked away in pensions and property.  We could also do away with the very generous welfare state in this country and make everyone do something useful for the money ... there are plenty of fields requiring harvesting, rubbish to be sorted and recycled etc.

Flippant maybe, but there is no simple solution that satisfies everyone, and most definitely not a workable solution when most peoples answer as to who should pay is 'someone else'.

wmb194

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.  

I think you're being a little disingenuous. There's always been a 'risk free' rate and for a long time the benchmark has been the yield on the ten year US treasury. This affects all sorts of things including the rates on corporate debt - which includes deposit accounts - and how people assess what sorts of investment risks to take. These rates have always been affected by government macroprudential policies to manage e.g., inflation but at the moment this isn't a worry and for obvious reasons they want people to invest in risk assets, hence the exceptionally low rates.

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? Typically for them it has been a case of aiming for a gross margin on lending of between 1% and 2% above the cost of deposits and this accounts for admin, default and if things don't go very badly a return for the shareholders. We've never been talking about massive returns, btw.

(I have a fixed term account with Leeds BS which is paying 4% for another four or five years so I must be a real fat-cat!)