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

steampowered

cricidmuslibale said:

There are some people who would regard risking one's capital on the stock market in order to try to get a better return as a form of gambling, I am one of them, and I am not comfortable with doing this in the same way that I'm not comfortable with betting for example.

Investing into productive assets is a sensible and safe thing to do - and in fact necessary for the economy to keep going. Simply because stock prices go up or down from time to time doesn't make investing gambling.

By your analysis, you are still "gambling". You are gambling on the creditworthiness of the bank you are lending your money to, and you are gambling on inflation. The only difference is that you are likely to lose that bet - since inflation will consistently erode the value of your savings over time - whereas an investor is likely to win their bet, since investments tend to keep pace with inflation.

How do you feel about pensions? Do you have a pension? Pensions are stock market investments.

How do you feel about property? Do you own a house? A house is an asset which can go up or down in value, just like stocks.

EdGasketTheSecond

Prism 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.

Who says that is not how a free market should work. The central banks buy bonds in todays world. It seems to be working in general as a way to prevent more severe downturns.

You seem overly concerned about the FED. This is a thread about UK interest rates which the FED have no control over.

You seem somewhat naive. Government intervention cannot mean free markets; the two are mutually exclusive.

What the FED does affects the rest of the world; watch the FED.

jimjames

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.

If you want a decent income then invest in a stock market fund. FTSE is paying 4% even with the dividend cuts announced. Obviously risk to capital involved but if income is most important then capital going up and down isn't so relevant, just treat it like a 5 year fixed rate account and don't look in the meantime

jimjames

cricidmuslibale said:

There are some people who would regard risking one's capital on the stock market in order to try to get a better return as a form of gambling, I am one of them, and I am not comfortable with doing this in the same way that I'm not comfortable with betting for example. I wasn't referring to those who only save in Sharia-compliant accounts btw.
I'm not seeking good interest merely what would be a reasonable amount as a bare minimum.

Just because you think investing is like gambling doesn't make it so. It is very different and seems more of a lack of understanding of stock markets. I don't bet but I do invest. If you think all companies are not going to prosper long term then clearly investment isn't going to be a good idea but businesses have grown for hundreds of years. There are established stock market funds that have been going since 1868 and still available now so it's not exactly a short term flash in the pan.
Out of interest if you're tying money up in a fixed rate account why does the capital value matter so much if it's income you are worried about?

Prism

EdGasketTheSecond said:

Prism 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.

Who says that is not how a free market should work. The central banks buy bonds in todays world. It seems to be working in general as a way to prevent more severe downturns.

You seem overly concerned about the FED. This is a thread about UK interest rates which the FED have no control over.

You seem somewhat naive. Government intervention cannot mean free markets; the two are mutually exclusive.

What the FED does affects the rest of the world; watch the FED.

I would suggest you are naive if you think we ever had a truely free market nor ever should. Governments have always influenced them to some degree - now in the UK probably less than before through the semi independence of the BoE.

I have only a passing interest in what the FED are doing since it is nothing I can influence. That is a problem for US citizens. I do have some limited influence over the UK government through my vote, but its nothing I spend my time worrying about. Focus on the things you can control not those that you can't.

AnotherJoe

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.

Would you be happy for your tax to pay for this? Moneys got to come from somewhere. Sounds like a bit of a zero sum game?

TL;DR "no"

John_

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?

EdGasketTheSecond

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?

cricidmuslibale

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). In the case of other savings providers, they would have a corresponding minimum interest level for fixed rate mortgages so that (a) mortgage holders are not overly favoured in comparison with savers as is often the case at present and (b) they can still retain the minimum margin between mortgage rates and savings rates that they need in order to pay their shareholders and remain both viable and competitive.

cricidmuslibale

steampowered said:

cricidmuslibale said:

There are some people who would regard risking one's capital on the stock market in order to try to get a better return as a form of gambling, I am one of them, and I am not comfortable with doing this in the same way that I'm not comfortable with betting for example.

Investing into productive assets is a sensible and safe thing to do - and in fact necessary for the economy to keep going. Simply because stock prices go up or down from time to time doesn't make investing gambling.

By your analysis, you are still "gambling". You are gambling on the creditworthiness of the bank you are lending your money to, and you are gambling on inflation. The only difference is that you are likely to lose that bet - since inflation will consistently erode the value of your savings over time - whereas an investor is likely to win their bet, since investments tend to keep pace with inflation.

How do you feel about pensions? Do you have a pension? Pensions are stock market investments.

How do you feel about property? Do you own a house? A house is an asset which can go up or down in value, just like stocks.

Thank you very much for your responses, always appreciated. Yes you are right, inflation does tend to erode the value of cash savings over time but recent years there have been periods when fixed rate accounts with NS&I and others have paid high enough interest (e.g. 2.2% for 3 years) to ensure that any capital saved in them has beaten overall inflation over that period (measured by the CPI index at least).

I feel pensions have to thought about somewhat differently as they are so necessary for later in life. Yes I know they are stock market investments and yes I have one but with only a small amount of money in it at the moment. When I can afford to do so I will tentatively add to this over time.

I know that property investments have done well overall over the last few years but I'm not sure I'm in a position right now to take advantage of this. I rent rather than own at present. And yes I know a house is an asset in that way but if I was fortunate enough to be able to afford to own one I would be grateful enough just to think of it as a relatively safe place to live in (bar all the routine and unexpected expenses of course).