There is one place where the Bank of England have successfully engineered an interest rate cut - saving deposits. Since the crisis, rates have fallen from around 5.5 percent to just a little over 2 percent. Banks have been able to reduce their funding costs from deposits by around 350 basis points. Since they haven't cut their lending rates, that rate reduction has gone into boosting bank profits.
There is a stark message for savers from this chart You are being made to pay for the bubble. Banks are covering up their losses from those huge defaulting mortgages by making savers pay through low interest rates on their deposits.
This is a crude redistribution income away from prudent savers to reckless speculators. Moreover, it was the unelected and undemocratic members of "independent" monetary policy committee of the Bank of England who arranged for this scandalous bailout.
But you still need to keep your cash ISA'd. When the next administration whacks up interest rates to eliminate the inflation the present one has printed, the tax relief will come in handy and be worth a lot even to a basic rate taxpayer.
ReplyDeleteThe key is to keep moving your money around where necessary. Not everyone knows it, but both T@sco and A&L allow you to open up new higher interest accounts without actually closing old ones so that when your bonus runs out or they introduce new higher interest accounts you needn't lose out. 3% is the minimum you should be getting right now.
ReplyDeleteI wouldn't completely agree savers are losing out. Certainly savers who have no mortgage or young people living rent-free with family are not. With RPI at -1.4% then that's effectively 4.4% which is actually close to the maximum return you would likely to get in rental on an average 160K property and you don't have the hassle factor.
Yeah, I think the market will force interest rates back up, hard, soon.
ReplyDeleteMore debtors than savers, so this is democracy in action. Doesn't tyranny come next?
ReplyDeleteGordon Brown is the man to blame for ALL this mess - he encouraged reckless lending to fuel his miracle economy and is still trying to re-inflate the housing bubble on yet MORE borrowed money to buy votes.
ReplyDeleteThis man insults my intelligence to be quite blunt - as someone who is financially responsible, lived within my means and saved for a rainy day - I feel VERY bitter towards this cretin - he is a corrupt, lying, traitor and an unelected one at that !
And yet everybody was perfectly happy with Gordon Brown's hand on the tiller when times were good! I remember regularly hearing "...best Chancellor ever..."
ReplyDeleteOne person is not to blame for this mess. Human avarice is.