Should we punish savers to help the feckless?

[Doggy Styles]

Lets say you get £20 a week less a week in interest. That means you make about £1000 less a year with a 1% cut. For 1% to be worth £1000 you must have £100K in the first place. If you have £100K in savings you can manage to supplement your pension for a couple of years... maybe less inheritance for your children but that's their problem.

I don't think my maths is wrong, approximate as it is? I haven't made a factor-of-ten error?

Your maths are OK, but 1% seems totally unrealistic.

Up to a few months ago, which is when the £20 we are talking about would have been be earned, 5% was easily available.

A differential of £20 a week is approximately 5% annual interest on 30K coming down to 2%.

The 30K could be the result of a small endowment, cash stowed away during 40 years of work, anything. Lots of people trying to save a bit for themselves only ended up with these sort of figures.

Anyway, why are we implying that we should not consider old people with savings, even those with low levels of savings? Are you Gordon Brown?

[Cheshire Cat]

What about the savers?
By Lorna Bourke | 12:01:01 | 04 December 2008

While much will be made of the cut in Bank Base Rate and whether or not it will be passed on in full to mortgage borrowers, little is said about the many millions more savers, mostly elderly people, who will see their income slashed yet again.

For every mortgage borrower there are seven savers and they have seen the return on their savings come down from over 7% gross to today’s level of 5% and are likely to see it drop to 4% or less. The banks are never slow to pass on any rate cuts to savers – even if they drag their feet over reductions in mortgage rates.

Given that a shortage of funds – rather than the price of funds – is the problem afflicting the mortgage market, it is doubtful whether cutting rates will have any beneficial effects whatsoever, since it is likely to stimulate demand for loans at a time when money is in short supply.

The authorities have lost control of interest rates. Bank Base Rate has come down from 5.75% in December 2007, less than a year ago, to today’s rate of 2%. But since then banks have increased the rates on personal loans, overdrafts, credit card borrowing – all of which have become more expensive - and in some cases even mortgages. If a shortage of funds is the problem, why discourage savers by reducing rates? And wasn’t cheap money the cause of the boom in house prices in the first place?
The government should be encouraging savers – not penalising them. In fact, a far more efficient way of stimulating the economy and encouraging savings would have been to give a tax concession on savings – for example, the first £5,000 of interest could be tax free – rather than cutting VAT by 2.5% which it is generally agreed will do nothing to stimulate demand.

Pensioners need every penny of their income and a tax break on savings would undoubtedly have fed through into spending on food, cars, household goods, medical care etc for these savers. Pensioner pressure groups have argued for years of the immorality of taxing savings income which derives from taxed income anyway.

The reason we are currently in a mess is because the banks lent more than we deposited with them to the tune of £700 billion. When the wholesale markets dried up there was a huge shortfall.

Following today’s cut in Bank Base Rate there will be a huge fuss if the banks don’t pass on the reduction in full to borrowers. But since they haven’t done so to date, there is little likelihood of them doing so this time.

The mortgage lenders have reduced their Standard Variable Rates but since at the moment very few borrowers are paying this rate – an estimated 800,000 out of over 11 million borrowers - it doesn’t mean much. And because SVRs are now mortgage ‘best buys’ the banks have closed SVRs to new borrowers, negating the whole point of Bank Base Rate reductions. Meanwhile they are quick to slash rates to savers thereby widening their profit margins yet again.

Lowering interest rates is punishing those who were sensible enough to save for their future while rewarding those who – in some cases – borrowed more than they could afford.

With the wholesale money market not functioning it is vitally important that the banks attract savings and deposits – yet lower interest rates will encourage savers to look around for alternatives, or force them to spend capital to maintain their standard of living.

And it’s already happening. Savings levels fell by over £19 billion over the last quarter although that is balanced by a net reduction in debt of £23 billion. However, those reducing savings are likely to be the elderly who need savings to subsidise income while those reducing debt are more likely to be those in employment paying off their credit card debts.

Savings levels almost halved over the last quarter to an all-time low, from £38.5 billion in quarter two of 2008 to £19.3 billion in the third quarter - a reduction of over £19 billion. Is this really what the government wants? Isn’t it about time we thought of savers?

Yes.

[DodgyAgent]

Does it occur to any of you that in order to save someone has to borrow. No one is borrowing so there is no demand for savers money which is why interest rates are so low. Why is it some of you stupid fools believe that it is virtuous to save yet wrong to borrow?

[DimPrawn]

Does it occur to any of you that in order to save someone has to borrow. No one is borrowing so there is no demand for savers money which is why interest rates are so low. Why is it some of you stupid fools believe that it is virtuous to save yet wrong to borrow?

My mum said "Neither a lender nor a borrower be".

Never did her any harm living in poverty.

[DodgyAgent]

My mum said "Neither a lender nor a borrower be".

Never did her any harm living in poverty.

She also said "if you do that you'll go blind". She never reckoned with Braille.

[Cheshire Cat]

My mum said "Neither a lender nor a borrower be".

Never did her any harm living in poverty.

You are Laertes, and I claim my five groats.

[Bagpuss]

Does it occur to any of you that in order to save someone has to borrow. No one is borrowing so there is no demand for savers money which is why interest rates are so low. Why is it some of you stupid fools believe that it is virtuous to save yet wrong to borrow?

No one of borrowing, are you having a laugh?
Interest rates are low due to the BOE ,not the market.
The banks want savers money, which is why some are still offering > 5% They are however being forced to lend cheap, something will have to give.

[Mich the Tester]

Why is it some of you stupid fools believe that it is virtuous to save yet wrong to borrow?

Because dodgy agents with sheepskin jackets and a face like Alistair Darling tell us we should borrow.

[DodgyAgent]

No one of borrowing, are you having a laugh?
Interest rates are low due to the BOE ,not the market.
The banks want savers money, which is why some are still offering > 5%

Interest rates reflect the state of the economy. No one is borrowing, everyone is saving because they are scared of investing in stocks and shares, property or businesses. Interest rates are therefore low in order to stimulate people into spending.

How hard is that to understand?

[DimPrawn]

Interest rates reflect the state of the economy. No one is borrowing, everyone is saving because they are scared of investing in stocks and shares, property or businesses. Interest rates are therefore low in order to stimulate people into spending.

How hard is that to understand?

Everything is overpriced. What's worth buying?