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

cricidmuslibale

jimjames 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. 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?

Thank you very much for the useful suggestions contained in both you recent posts above. To answer your question at the end of the 2nd post, I tend to only put money into fixed rate accounts if either (a) they pay out at least 'reasonable' amounts of monthly interest (certainly no less than 1% AER) and even then I don't save in them for more than a year or two because of capital value erosion by inflation or (b) the annual interest rate is good enough to ensure my capital at least holds it own with CPI inflation over the lifetime of the account. Thus when I suggest a fair minimum fixed rate of 0.5%, I'm entirely aware that I personally would only save in such a low-paying account if CPI inflation was likely to average at c. 0.5% during the account's lifespan.

cricidmuslibale

AnotherJoe 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.

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"

Thank you for your questions above. I've given what I hope are sensible and entirely reasonable suggestions as to where the money could come from in the case of NS&I and also in the case of other savings providers in a previous post of mine above. A minimum legal interest rate of 0.5% is easily low enough not to need to be sourced from mine or anyone else's tax. So, no I don't personally think we need to think of this situation as a zero sum game.

Sailtheworld

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.

cricidmuslibale

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!         
  
At the end of the day saving is all about taking personal responsibility, not spending any more than you need to now because unexpected, unavoidable expenses are bound to occur later on. And, crucially, not having to rely on the state to bail you out in times of most need! Even in this far from perfect world, everyone should be encouraged to save wherever possible but most people simply won't do it if they are going to get absolutely nothing for it in return! In fact worse than that they will probably end up with their capital having lost a considerable amount of its value due to inflation as well. Zero interest rates for savers, other than as a very temporary blip, would be imho completely and utterly unacceptable, in fact an absolutely disgraceful state of affairs!

eskbanker

cricidmuslibale said:
Zero interest rates for savers, other than as a very temporary blip, would be imho completely and utterly unacceptable, in fact an absolutely disgraceful state of affairs!

Are you a sub-editor for the Daily Mail by any chance?  That seems to be just the kind of indignant outrage rhetoric that their readers lap up, despite it being pointlessly futile....

cricidmuslibale

Furthermore any British government that permits zero interest rates for savers to persist for any length of time can expect to lose the next General Election! It would be very unpopular with many and, crucially, the voters that would be most badly affected by this (the elderly who tend to save rather than invest) are the most likely voters to turn up to (or post their) vote!

Another_Saver

Interest has to be generated somehow.
Noone is entitled to put their money somewhere safe and earn interest, we are lucky to have the fscs and gilts.
A legal minimum rate would be government either exploiting gilt holders to pay NS&I customers, or arbitrarily intervening in the credit market to force borrowers (who are by definition poorer) to pay more interest to savers, during a crisis that has accelerated widening wealth inequality faster than anything ever, I would guess to a higher level than since before the first labour government and adoption of Keynes. This is how revolutions have started and there's no evidence that significantly higher inequality is good for anyone.
Low rates are caused by 1960s baby boomers, who have had it better than any generation before or since in relative terms (https://youtu.be/ZuXzvjBYW8A).
After 2030 rates will start rising back to "normal" again as boomers divest into retirement.

EdGasketTheSecond

The trouble is I think rates might be worse under a Labour government. Its the new MMT (modern-monetary theory); just have zero interest rates and conjure up currency from thin air and all problems will be solved. Lets see how much currency Rishi has flushed away tomorrow.

cricidmuslibale

eskbanker said:

cricidmuslibale said:
Zero interest rates for savers, other than as a very temporary blip, would be imho completely and utterly unacceptable, in fact an absolutely disgraceful state of affairs!

Are you a sub-editor for the Daily Mail by any chance?  That seems to be just the kind of indignant outrage rhetoric that their readers lap up, despite it being pointlessly futile....

Goodness me no! I can't stand the Daily Mail! I'm actually a liberal and a centrist, not a hard right winger. But I will always stand up for savers because they have overall had a very hard time since about 2009 through absolutely no fault of their own and they deserve so so much better treatment than they are currently getting!

eskbanker

cricidmuslibale said:

eskbanker said:

cricidmuslibale said:
Zero interest rates for savers, other than as a very temporary blip, would be imho completely and utterly unacceptable, in fact an absolutely disgraceful state of affairs!

Are you a sub-editor for the Daily Mail by any chance?  That seems to be just the kind of indignant outrage rhetoric that their readers lap up, despite it being pointlessly futile....

Goodness me no! I can't stand the Daily Mail! I'm actually a liberal and a centrist, not a hard right winger. But I will always stand up for savers because they have overall had a very hard time since about 2009 through absolutely no fault of their own and they deserve so so much better treatment than they are currently getting!

Yes, I wasn't actually referring to the DM's politics as such, more the reactionary why-oh-whining style - 'standing up for savers' sounds very noble but if you're just essentially standing on a soapbox ranting about how unfair everything is then that doesn't actually achieve anything!  Are you engaging with NS&I on this, or your MP about government policy, etc?