'The AER interest rate:a blunt, flaccid tool' blog discussion

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  • DarkConvictDarkConvict Forumite
    6.3K Posts
    Jeffp1 you would be best to forward that question directly to martin. http://www.moneysavingexpert.com/site/site-contacts
    Although no trees were harmed during the creation of this post, a large number of electrons were greatly inconvenienced.

    There are two ways of constructing a software design: One way is to make it so simple that there are obviously no deficiencies, and the other way is to make it so complicated that there are no obvious deficiencies
  • edited 27 June 2010 at 2:14PM
    Premier_2Premier_2 Forumite
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    edited 27 June 2010 at 2:14PM
    3%, 5% pah!

    Lets do away with AER/APR's and go back to the old days.

    I wonder how long before we see interest rates for savings of say, 365% p.a. (for first day, and then 0.00000000001% p.a for the remaining 364 days.) As a deposit account, 3 months notice (or 3 months loss of interest) is required for withdrawals.

    Or as already pointed out, how about a £1000 loan for a year at 0% (but a £500 admin fee will apply)?

    The AER/APR is not a perfect tool, but it was introduced in an attempt, and succeeds to a point, to get rid of some clearly deceptive practises.
    "Now to trolling as a concept. .... Personally, I've always found it a little sad that people choose to spend such a large proportion of their lives in this way but they do, and we have to deal with it." - MSE Forum Manager 6th July 2010
  • PincherPincher
    6.6K Posts
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    Jeffp1 wrote: »
    Martin,

    I have recently puchased the max index linked certificates in the belief that at the moment they will deliver 1% plus RPI ie around 6.1% tax free as is being stated by many including you!
    However,I have just been told by a financial adviser that this is not true and that the marketing for this is deceptive ! What you actually get is the DIFFERENCE between RPI when you buy them and the anniversary date +1%, so if inflation stays at 5.1% for next 12 months I will only get 1% !!!

    please confirm if this is correct as you have been quoting that you get 6.3% tax free, which does not appear to be the case. The Fin advisor said it does not clarify this on line and you need to read the printed literature from the PO. I welcome your comments and clarification.

    Your financial adviser is just not explaining it right.

    On 1st January 2009, a basket of products is worth £1,000.
    It stays at £1,000 for all of 2009.

    On 1st January 2010, the same basket is worth £1,051, which is 5.1% inflation from exacty one year ago.
    It stays at £1,051 for all of 2010.

    On 1st January 2011, the same basket is still worth £1,051, which is 0.0% inflation from exacty one year ago.
    It stays at £1,051 for all of 2011.

    If you bought the index linked certificate on 1/Jan/2009,
    so the anniversary is 1/Jan/2010, you will get £61 annual interest,
    consisting of 5.1% inflation + 1.0% guarantee.

    Throughout 2010, published RPI is 5.1%, because it's comparing £1,051 with a year ago. Your financial adviser is saying, if you bought the certificate on 1/Jan/2010, when the basket is worth £1,051, you will see RPI = 5.1% in the news papers every day in 2010, but on 1/Jan/2011, you will only get £10 interest, because the basket of products is still only worth £1,051. The RPI on 1/Jan/2011 is 0.0%!

    What he was trying to tell you is, you SHOULD HAVE BOUGHT THE CERTIFICATE LAST YEAR!
  • RafterRafter Forumite
    3.8K Posts
    Think that would just complicate matters Martin.

    Best solution would seem to be that the AER has to be the advertised rate and larger and bolder than any other number quoted.

    That way, companies wouldn't get the same response rate for accounts with pittifully short bonus' and would be more incentivised to offer long term value for money.

    Not best for the canny moneysaver who wants to switch and ditch, but better for consumers overall.

    R.
    Smile :), it makes people wonder what you have been up to.
  • cashferretcashferret Forumite
    233 Posts
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    I think the issue goes beyond the AER not being a good descriptor of "ditch and switch" accounts. I think that banks offering high rates and then dropping them sharply to very low rates is wrong; I think it should be illegal for banks to offer savings accounts with interest rates below a certain threshold.

    I am in the process of taking over the finances of my elderly parents. Like many older people of their generation, my dad became ill first and handed financial control over to my mother several years ago. She wasn't equipped to deal with them but refused help until recently. I'm finding tens of thousands of pounds in their various a/cs that have been earning 0.1% interest for years. These are their savings that should be providing them an income in their old age.

    I think this is morally criminal and ought to be legally criminal. Elderly and vulnerable people simply can't keep on top of the admin load involved in constantly having to change bank accounts and the rest of us shouldn't have to work so hard at it either. Banks are making money by lending out our deposits; they owe us a fair return.

    Martin, please help get a law passed! Surely there's a great campaign here!
  • If banks are required to offer all customers the best rate as you say then all rates will be the same. ML will be out of a job and we will all receive 0.50% per year - bank base rate. Individuals have a responsibility to manage their own finances and take some responsibilty by reading stuff like this and acting on it.

    As long as nothing is hidden I don't see what the problem is. AER's are required by law on advertisements. This isn't the fault of the banks and it is a one size fits all rule. But can you come up with a better one? Not using an AER allows the banks to advertise an account rate at 5% without bringing to your attention the fact it has a 4% bonus for 6 months.
    cashferret wrote: »
    I think the issue goes beyond the AER not being a good descriptor of "ditch and switch" accounts. I think that banks offering high rates and then dropping them sharply to very low rates is wrong; I think it should be illegal for banks to offer savings accounts with interest rates below a certain threshold.

    I am in the process of taking over the finances of my elderly parents. Like many older people of their generation, my dad became ill first and handed financial control over to my mother several years ago. She wasn't equipped to deal with them but refused help until recently. I'm finding tens of thousands of pounds in their various a/cs that have been earning 0.1% interest for years. These are their savings that should be providing them an income in their old age.

    I think this is morally criminal and ought to be legally criminal. Elderly and vulnerable people simply can't keep on top of the admin load involved in constantly having to change bank accounts and the rest of us shouldn't have to work so hard at it either. Banks are making money by lending out our deposits; they owe us a fair return.

    Martin, please help get a law passed! Surely there's a great campaign here!
  • AleeAlee Forumite
    5 Posts
    Oh, I love Martin's and this forum site. It's taught me a lot. All the comments here are valid and interesting. Can't we chop off this "flaccid tool" and all the other tricks. How I dream of the good old days when savings and borrowing were straightforward and simple? I happy for banks to make money but why do they have to be so sly about it. Unfortunately, there is no ethical bank left - they are all the same rip-off merchants. The only difference is - how much?
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