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View Full Version : Savers lose out on £44.5bn as Bank Rate stays at 0.5pc



AtW
12th January 2012, 21:13
Saver our Savers, the campaign group, claims that Britain's savers are losing out on £44.5bn because of the gulf between inflation and Bank Rate, which continues to languish at 0.5pc. The campaigners said that they calculated the figure using official Bank of England figures.

Simon Rose, spokesman for Save Our Savers said: "It is unfair: to confiscate £44.5 billion annually from savers and pensioners and transfer it to those in debt; to penalise those who have struggled to put something by in order to support those who ran up debts and caused this financial crisis; to reward debt and penalise savings."

The Bank of England also said that the Bank's quantitative easing (QE) programme would remain at £275 billion following the increase of £75 billion in October. The no-change decision came despite a call from the British Chambers of Commerce to increase its support with a £50 billion top-up to QE, following October's shock increase.

But the Bank opted not to move yet as it waits for a clearer picture of how the economy fared in the final quarter of 2011 following mixed recent data.

Fears intensified that the economy might have slipped into reverse in the fourth quarter of 2011, after Office for National Statistics figures revealed industrial production declined by 0.6pc in November, following a 1pc fall in October. Manufacturing output fell 0.2pc in November although its decline was at a lower rate than the previous month.

There have also been recent signs that the economy improved slightly in December, with industry surveys coming in stronger than expected. Growth in the powerhouse services sector, which makes up 75pc of the UK economy, is likely to have saved the wider economy from contraction in the final quarter, while surveys reported growth in manufacturing and construction.

But the crisis in the eurozone – which the Bank cited as one of the key threats to UK recovery – continues to rumble on as EU leaders are yet to deliver a concrete plan to resolve the region's problems. Economists still expect a further £50 billion of QE from the Bank of England in both the first and second quarters of this year, taking the total up to £375 billion.

Source: Savers lose out on £44.5bn as Bank Rate stays at 0.5pc - Telegraph (http://www.telegraph.co.uk/finance/personalfinance/savings/9010359/Savers-lose-out-on-44.5bn-as-Bank-Rate-stays-at-0.5pc.html)

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What's £44.5 bln?

That's 50% more than High Speed 2 will cost over 20 years building it up to Manchester and Leeds.

That's equivalent to around 10% in rate of VAT (ie it would need to go to 30% to steal same amount of money). :mad

Jeff Maginty
12th January 2012, 21:45
Of course it's a gross injustice to punish savers and reward reckless people who've run up large debts. That's what's happening under the current (low-interest-rate + high-inflation) economy.

As others have said, the powers-that-be are doing everything they can to keep the property bubble inflated.

However, nobody is above the market (not even governments), and sooner or later it will probably blow-up in their faces (metaphorically speaking!). Or to put it another way: an unsustainable situation cannot be sustained.

A return to basic common-sense management of the economy is long, long, long overdue.

Freamon
12th January 2012, 21:59
Who exactly is going to "save" them?

Nobody (not even the govt or the BoE) can force banks to pay a particular interest rate on savings. If they did, banks would just stop offering savings accounts.

Same as nobody can force banks to lend at a particular rate, as many have learned to their cost recently.

AtW
12th January 2012, 22:01
Nobody (not even the govt or the BoE) can force banks to pay a particular interest rate on savings.

Banks don't offer more money on savings accounts precisely because BoE would lend at 0.5% using tulip paper banks own as collateral.

Freamon
12th January 2012, 22:21
Banks don't offer more money on savings accounts precisely because BoE would lend at 0.5% using tulip paper banks own as collateral.

But savings accounts don't require any collateral at all?

AtW
12th January 2012, 22:27
But savings accounts don't require any collateral at all?

From savers point of view collateral is FSA guarantee of deposits up to whatever value it is now (£50k?).

From banks point of view they get full cash upfront, the word "collateral" is meaningless in this case as there is no risk.

MarillionFan
12th January 2012, 22:39
Why have they lost £45billion exactly????

AtW
12th January 2012, 22:41
Why have they lost £45billion exactly????

A question a child might ask, but not a childish question.

I'd answer it but I don't think you'd understand. :eyes

MarillionFan
12th January 2012, 22:41
A question a child might ask, but not a childish question.

I'd answer it but I don't think you'd understand. :eyes

I get 5% on my savings. Maybe they should come to me.

Freamon
12th January 2012, 22:43
From savers point of view collateral is FSA guarantee of deposits up to whatever value it is now (£50k?).

From banks point of view they get full cash upfront, the word "collateral" is meaningless in this case as there is no risk.
The FSCS is taking the risk.

The point about no collateral being required is that, if a bank is short of collateral but needs to borrow some money, then they *would* offer savings accounts at above 0.5%. But nobody can force them to do this if they don't need to. Which is why I was asking who exactly is going to "save" savers, since the govt and BoE cannot do it.

AtW
12th January 2012, 22:43
I get 5% on my savings.

Lending £100 to your poor relatives under exorbitant rate does not count :eyes

AtW
12th January 2012, 22:46
Which is why I was asking who exactly is going to "save" savers, since the govt and BoE cannot do it.

Banks need money to operate - they have no need to buy money at real price when printing presses of BoE will happily lend them for 0.5% using "AAA" security tulip as collateral and maybe not even that to "ease the flow of credit".

Now imagine BoE gave no money to commercial banks and same did FRS and ECB. What would be the cost of credit on LIBOR? Maybe well over 10% in which case paying decent rates to savers would actually make sense.

However in one swoop modern Western Govts totally tuliped over supposedly market economy and capitalism and fecked over the very people who resisted the temptation to get drunk on debt that is the root cause of current crisis.

MarillionFan
12th January 2012, 22:49
Lending £100 to your poor relatives under exorbitant rate does not count :eyes

Actually I lent one of my nephews Dave £100 recently for a week on the premise he paid me back £101. At the end of the week he paid me back.
My second, Hans also wanted £100. I lent him £100 and a week later he paid me back £105.
Then my last nephew Giovanni popped up to the house. I told him to **** off.

Freamon
12th January 2012, 23:05
Banks need money to operate - they have no need to buy money at real price when printing presses of BoE will happily lend them for 0.5% using "AAA" security tulip as collateral and maybe not even that to "ease the flow of credit".

But if they have no collateral available then this isn't possible. Over the past few years there have been plenty of times where some banks had no collateral.



Now imagine BoE gave no money to commercial banks and same did FRS and ECB. What would be the cost of credit on LIBOR? Maybe well over 10% in which case paying decent rates to savers would actually make sense.

I don't think it's BoE activity that is keeping sterling LIBOR down. It's simply because there is no demand to borrow (by eligible borrowers).

AtW
12th January 2012, 23:11
I don't think it's BoE activity that is keeping sterling LIBOR down. It's simply because there is no demand to borrow (by eligible borrowers).

So in your view LIBOR is currently 0.30% for 1 month because no bank needs any money and everybody has got so much cash that they would be happy to loan at 0.30% rather than use it to lend to credit card users who get charged 20% or even loans secured on houses at 5-7%?

gingerjedi
12th January 2012, 23:18
Why do people think they deserve to be paid just for depositing money? :eyes

Take a gamble on some bonds if you want to 'earn' money for nothing.

AtW
12th January 2012, 23:20
Why do people think they deserve to be paid just for depositing money? :eyes

Ok, how about this - when money is deposited it can be lent out at anything 5-20% interest rate. Why do you think people who actually have the money don't deserve the payout?

If banks were only allowed to lend what they have attracted in savings the whole financial system would be far more stable - it would also encourage to save.

MarillionFan
12th January 2012, 23:22
Why do people think they deserve to be paid just for depositing money? :eyes

Take a gamble on some bonds if you want to 'earn' money for nothing.

That's not gambling. Gambling is seeing who can piss the furthest up a dead Taliban's back. Now that;s gambling. :eyes

gingerjedi
12th January 2012, 23:22
Actually I lent one of my nephews Dave £100 recently for a week on the premise he paid me back £101. At the end of the week he paid me back.
My second, Hans also wanted £100. I lent him £100 and a week later he paid me back £105.
Then my last nephew Giovanni popped up to the house. I told him to **** off.

Has Stavros paid you back yet?

Freamon
12th January 2012, 23:24
So in your view LIBOR is currently 0.30% for 1 month because no bank needs any money and everybody has got so much cash that they would be happy to loan at 0.30% rather than use it to lend to credit card users who get charged 20% or even loans secured on houses at 5-7%?

You are oversimplifying things.

Firstly there is not an infinite demand from borrowers to take out mortgages or borrow money on credit cards. Secondly, both these types of borrowing are volatile. Banks can get early repayments on mortgages at any time, they can get people adding to their credit card debt at any time, and payments coming in on credit cards at any time. They put a lot of work into predicting and modelling these behaviours but they cannot be 100% certain.

The interbank market is used by banks to manage their day-to-day cash positions. Due to payment events as described above, banks may have surplus cash at the end of the day, or may need some cash to ensure their reserve account is above the regulatory minimum. They use the interbank market to borrow/lend unsecured with other banks, to get some extra cash temporarily to fulfil reserve requirements, or to make a bit of interest on some excess cash overnight by lending it out.

In the olden days (pre 2007) banks managed this cash position fairly aggressively so they ensured they maximised the return on their cash and didn't keep much surplus cash in reserve. But obviously this carries the risk that they may run out of cash and need to go to the interbank market for funds. It was assumed these funds would always be available, and if there was a little bit too much demand then LIBOR would go up, but never by very much, i.e. banks assumed this was a safe approach.

Then obviously the events of 2007 changed this, the interbank market froze (as banks couldn't be sure their counterparty banks would go bust the following day) and this source of funding dried up.

When this happened, in any case where a bank ran out of cash, the regulators stepped in and either took over the bank entirely or took over much of the banks' equity. In both instances they fired the people running the bank.

Obviously once this happened, it became abundantly clear to banks that the penalty for mismanaging your cash position in this way was that your executives got fired and your bank got partly/fully nationalised.

Since then banks have ensured they keep plenty of spare cash lying around (as evidenced by the fact that reserve amounts lodged with the BoE are enormous compared to pre 2007) and therefore the demand to borrow over short term periods has fallen dramatically.

Add to this the fact that most of the world is in recession and therefore very few businesses are investing in expansion, and you also have a situation where demand to borrow over longer periods is massively diminished as well.

All of this leads to the very low interest rates that we have today (both overnight and longer maturities) and has pretty much nothing to do with the BoE.

gingerjedi
12th January 2012, 23:27
Ok, how about this - when money is deposited it can be lent out at anything 5-20% interest rate. Why do you think people who actually have the money don't deserve the payout?

If banks were only allowed to lend what they have attracted in savings the whole financial system would be far more stable - it would also encourage to save.

I see your point but I have no savings and a mortgage so I don't see why I would want to agree with you. :wink

AtW
12th January 2012, 23:31
I see your point but I have no savings and a mortgage so I don't see why I would want to agree with you. :wink

You have no cash in your bank account yet you can sleep well at night? :eyes

Freamon
12th January 2012, 23:36
Ok, how about this - when money is deposited it can be lent out at anything 5-20% interest rate. Why do you think people who actually have the money don't deserve the payout?

If banks were only allowed to lend what they have attracted in savings the whole financial system would be far more stable - it would also encourage to save.

Erm, banks are only allowed to lend what they have attracted in savings. And not all of it either, they have to keep a certain percentage in reserve.

It's the fact they can lend out the money that people have in their savings accounts at all that causes the problem.

The solution you're looking for is to only allow banks to lend out money that people have invested with the bank. Savings != investments.

AtW
12th January 2012, 23:38
Erm, banks are only allowed to lend what they have attracted in savings.

:rollin:

Freamon
12th January 2012, 23:40
:rollin:

Ignorance is bliss, in your case. :eyes

AtW
12th January 2012, 23:42
Ignorance is bliss, in your case. :eyes

Do you know the difference between "savings" in bank balance and "loaned" money?

gingerjedi
12th January 2012, 23:47
You have no cash in your bank account yet you can sleep well at night? :eyes

You have cash in a bank account and you can sleep at night? :eyes

AtW
12th January 2012, 23:48
You have cash in a bank account and you can sleep at night? :eyes

Now that you've mentioned it - NO! :eek:

Freamon
12th January 2012, 23:50
Do you know the difference between "savings" in bank balance and "loaned" money?

Yes, but clearly you don't understand, so I'll have to explain in very simple terms.

Person A deposits £100 in savings in Bank X.
Bank X can now lend Person B £90 and has to keep the remaining £10 in reserve.

Person B goes to a shop and spends the £90, shopkeeper deposits the £90 in Bank Y.
Bank Y can now lend Person C £81 and has to keep the remaining £9 in reserve.

And so on.

At no stage is any bank able to lend out any more than it has received in savings..

Simple enough for you?

AtW
12th January 2012, 23:56
Yes, but clearly you don't understand

I actually do understand, it is you who confuses savings with debt that some unnamed banks loaded themselves up using foreign markets.

gingerjedi
12th January 2012, 23:58
Now that you've mentioned it - NO! :eek:

If things get so bad that I cant feed and house my family what do you think your money will be worth?

Freamon
13th January 2012, 00:01
I actually do understand, it is you who confuses savings with debt that some unnamed banks loaded themselves up using foreign markets.

If a bank receives someone's savings into a savings account then this is a debt the bank owes to the saver.

If a bank receives someone's savings (from abroad possibly) by virtue of selling them an RMBS or other bond, this is a debt the bank owes to the saver.

For the purposes of this discussion there is no distinction, a bank still cannot lend out more than it has received in savings (either into savings accounts or by selling bonds of any kind).

Did they not teach you this in your finance BTEC or GNVQ or whatever qualification you did?

AtW
13th January 2012, 00:04
For the purposes of this discussion there is no distinction

Oh yes there is!

The whole point is that distinction - savings come from local people or companies, debt can be raised from international markets. This is the root of the problem - some tulipy building society in the middle of nowhere suddenly can think of itself as a global player where as in the first place their mission was to invest locally using local resources.

If that was enforced through regulation then savings would be encouraged and debt would be the last resort.

AtW
13th January 2012, 00:07
Did they not teach you this in your finance BTEC or GNVQ or whatever qualification you did?

My two degrees come from an ex-Soviet Uni and a UK ex-Poly.

HTH

Freamon
13th January 2012, 00:08
Oh yes there is!

The whole point is that distinction - savings come from local people or companies, debt can be raised from international markets. This is the root of the problem - some tulipy building society in the middle of nowhere suddenly can think of itself as a global player where as in the first place their mission was to invest locally using local resources.

If that was enforced through regulation then savings would be encouraged and debt would be the last resort.
Savings can come from anywhere in the world.

What you describe as debt is quite often investments bought by pension funds using money that people have saved into their pensions.

It really is all the same thing.

You can say that the types of investments sold by banks should have been better regulated, but that's a different issue.

AtW
13th January 2012, 00:10
Savings can come from anywhere in the world.

Saving is not the same as investment.

Very few people from abroad save their money in UK, even though some of the most richest of them invest into UK football clubs, overpriced mansions etc.

Think about a building society - it was meant to be funded by local people using their savings, can it be in the spirit of that mandate to raise lots of money on international markets using some tulipy rating agency high rate as excuse to raise money?

Saving money isn't the same as investing money - I guess this vital distionction wasn't taught in your Oxbridge school?

Freamon
13th January 2012, 00:13
Saving is not the same as investment.

Very few people from abroad save their money in UK, even though some of the most richest of them invest into UK football clubs, overpriced mansions etc.

Think about a building society - it was meant to be funded by local people using their savings, can it be in the spirit of that mandate to raise lots of money on international markets using some tulipy rating agency high rate as excuse to raise money?

Saving money isn't the same as investing money - I guess this vital distionction wasn't taught in your Oxbridge school?
Erm, actually I made the distinction between saving and investment several posts ago, to which your only response was:

:rollin:

AtW
13th January 2012, 00:14
Erm, actually I made the distinction between saving and investment several posts ago, to which your only response was:

I've tried to be short in my response, for your benefit I'll expand on my original thinking:






















































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Freamon
13th January 2012, 00:16
I've tried to be short in my response, for your benefit I'll expand on my original thinking:
Not sure I can compete with that level of intellect. Was that taught in your GNVQ too?

AtW
13th January 2012, 00:19
Was that taught in your GNVQ too?

Nope - in Soviet school equivalent was after 8 years in school after which the unfortunate person would have to learn some practical skills on using some outdated hardware captured in Germany in the 40s, luckily for me I had good grades so I moved over to the next level: graduation with distionction (silver medal).

HTH