Further pressure to come on savers interest rates?

[Gan020]

I'm sure we will have all noticed that the best rates for savers over the last few years have been from Shaira banks.

From first quarter of 2021, the BOE are introducing a new Alternative Liquidity Facility (ALF) which will enable them to hold reserves in a non-interest rate environment.


https://www.financialreporter.co.uk/fin ... banks.html

[supremetwo]

There has been huge criticism from German savers and their MPs about miniscule savings interest rates, but in the UK it is barely mentioned either in Parliament or by the press.

The UK Government gave NS&I a target to attract an additional £29 billion from savers and six months later ordered an unprecedented huge reduction in the interest rate to what might as well be zero, now 0.01% thus £1 per year per £10,000.

NS&I says the reduction is to realign their rates with the rest of the retail savings market but 0.01% is so far below the market bottom that it has given carte blanche for commercial providers to further reduce their rates to all savers.

There appear to be no MPs at all questioning the effects of such a severe loss of income to many savers.

Plenty of MPs speaking in the House about supporting pub and entertainment businesses but, for many of those that rely on their income from savings, the reductions in income mean they'll be unable to afford any entertainment after Covid-19 has been beaten.

[Lootman]

NS&I says the reduction is to realign their rates with the rest of the retail savings market but 0.01% is so far below the market bottom that it has given carte blanche for commercial providers to further reduce their rates to all savers.

There appear to be no MPs at all questioning the effects of such a severe loss of income to many savers.

My bank offers 0.05% on a savings account and from what I have seen the other banks are similar. So who are the banks that offer rates that these are "so far below market"?

The only places I see higher rates are on accounts that have a catch - either they are time deposits, or monthly savings accounts, or have a monetary limit on how much you can deposit with them.

I doubt that there is anyone in the UK who expects to live off the interest on a savings account, which is probably why shares and bonds have done so well recently.

And what are the banks supposed to do? Offer high savings rates and low borrowing rates? That is a recipe for another bailout of the banks. So perhaps it is up to National Savings to offer uneconomic savings rates. But even so it is hard to see the government giving us more than 0.5% when it can borrow for about that rate anyway.

For me a savings account is just a safer place to hold cash than a current account.

[supremetwo]

See income bonds:-

https://www.nsandi.com/historical-interest-rates

And plenty of other savings accounts between 1% and 1.5% before this NS&I plummet.

[dealtn]

See income bonds:-

https://www.nsandi.com/historical-interest-rates

And plenty of other savings accounts between 1% and 1.5% before this NS&I plummet.

Not sure what that proves other than that interest rates were higher in the past. That's not especially revealing.

Why should NS&I, or any commercial bank, offer savings rates meaningfully higher than policy rate, or underlying market rates?

[Lootman]

See income bonds:-

https://www.nsandi.com/historical-interest-rates

And plenty of other savings accounts between 1% and 1.5% before this NS&I plummet.

About a decade ago a friend of mine retired and he had about a million in liquid assets. I tried to get him into the stock market, or at least gilts, but he had never done that and considered it too risky. This was right after the financial crisis so perhaps that was understandable.

Anyway he proudly announced that he was going to put the whole lot in National Savings which, at the time, would have given him an income of several tens of thousands of pounds a year, with no credit risk and (I think) a favourable tax treatment. I forget which NS&I product he went for; might have been more than one.

I daren't bring the topic up with him now, and not surprisingly he never does either. A rate of 0.01% on a million quid is a hundred quid a year.

[supremetwo]

Why should NS&I, or any commercial bank, offer savings rates meaningfully higher than policy rate, or underlying market rates?

Where will the funds come from for a mortgage or a loan if nobody bothers to save due to these miniscule rates?

[dealtn]

Why should NS&I, or any commercial bank, offer savings rates meaningfully higher than policy rate, or underlying market rates?

Where will the funds come from for a mortgage or a loan if nobody bothers to save due to these miniscule rates?

Where do you think those savings go? You think they just "vanish" if nobody bothers to save? That's an interesting transmission mechanism, can you explain how that works?

There is still the same funds in the banking system, and the banks will continue to lend them as demand requires.

[supremetwo]

Why should NS&I, or any commercial bank, offer savings rates meaningfully higher than policy rate, or underlying market rates?

Where will the funds come from for a mortgage or a loan if nobody bothers to save due to these miniscule rates?

Where do you think those savings go? You think they just "vanish" if nobody bothers to save? That's an interesting transmission mechanism, can you explain how that works?

There is still the same funds in the banking system, and the banks will continue to lend them as demand requires.

The surge in small investors thus less cash in the actual banking system for the banks and building societies to lend.
https://www.ft.com/content/b476c95e-22c ... d48eac0bd2

Interactive Investor said the rapid account growth on the platform was also led by younger investors. Nearly 40 per cent of accounts opened between February 18 and March 18 were by users under the age of 34, compared with just 18 per cent of accounts over the same period in 2019, a 111 per cent increase.

[dealtn]

Where will the funds come from for a mortgage or a loan if nobody bothers to save due to these miniscule rates?

Where do you think those savings go? You think they just "vanish" if nobody bothers to save? That's an interesting transmission mechanism, can you explain how that works?

There is still the same funds in the banking system, and the banks will continue to lend them as demand requires.

The surge in small investors thus less cash in the actual banking system for the banks and building societies to lend.
https://www.ft.com/content/b476c95e-22c ... d48eac0bd2

Interactive Investor said the rapid account growth on the platform was also led by younger investors. Nearly 40 per cent of accounts opened between February 18 and March 18 were by users under the age of 34, compared with just 18 per cent of accounts over the same period in 2019, a 111 per cent increase.

Firewall so no idea what line your argument is taking, sorry.

But I am guessing you are saying funds are withdrawn from savings account and deposited elsewhere (share dealing accounts?). In which case when those withdrawn funds are deposited what do you think happens to them? By whatever transaction follows the funds are deposited in someone else's account, which will be at a bank somewhere. Those funds are available in the banking system for onward lending.

[Adamski]

I doubt that there is anyone in the UK who expects to live off the interest on a savings account, which is probably why shares and bonds have done so well recently.

Hi Lootman, agree, and I think the crash was so short lived this year as interest rates near zero, so cannot get much return elsewhere, in bank savings or bonds, so investors have no choice but to put back into equities.

Cash savings generally lose money now in real terms and only premium bonds which seem to offer a positive real return.

[scrumpyjack]

The premium bind prize rate is now 1%, so it is negative in real terms too.