London capital and finance
Discussion
chip* said:
^^^^
a sound and simple checklist for the sensible investors, but you are neglecting the fact that greed and laziness are a huge overriding factor for many in the public domain i.e. they read the top section promising untold riches and that's all they want to read...
That's the other aspect of this, the sort of two different groups, those who get caught out due to financial naivety which it's possible to try and protect against by education, warnings, sound regulation etc and then those who are simple destined to give all their money away throughout their life where they simply do not want to learn anything, do not want to read anything, do not want to listen to anything. They know best and time and time again leap from one on trend wheeze to the next probably even being rinsed by the same people each time as they rebrand. a sound and simple checklist for the sensible investors, but you are neglecting the fact that greed and laziness are a huge overriding factor for many in the public domain i.e. they read the top section promising untold riches and that's all they want to read...
This is the whole problem of cognitive bias which we see so prevalently today and gets used by the tabloids, by politicians. The mark has already decided they are going to believe one part and that ensures they have to therefore believe the other parts.
It's the weird thing we're seeing on PH at the moment with hydrogen. There's a large number of people who don't want to know the science, don't want to know the reality, don't want to know why we are actually investing in hydrogen. Even after the last few weeks where repeated nations have publicly outlined the purpose of hydrogen, these people just plan and simple do not want to engage in any form with reality. And this means a firm like VW can play them like a Stradivarius and create this devout army of followers. You just know that you could also sell these same people worthless financial products. They focus on the headline, they already want to believe so that headline just tells them that they are right. They won't even read the rest of the article let alone question what is random conjecture and what is actual fact or more importantly, won't notice what is being omitted.
The other big one at the moment is 'carbon capture'. No one wants to actually know what they mean they just devoutly believe the illusion that somehow carbon is being captured from the atmosphere. The companies using the buzz word are then very careful to not head down the path of where the carbon is really being captured from but all anyone actually has to do is Google where industry gets its CO2 raw material from (it was even all over the BBC when there was a shortage during lockdown so subliminally most people probably know) but they just don't want to know and it does not matter how many times they are told they will not change their mind.
What I find interesting in retail finance is that you'd come across such people once in a while. You'd talk to them for half an hour about how not to take risk, how the product worked and within minutes of hanging up they were on a bulletin board spouting the stuff you just spent half an hour correcting like they were a leading authority and while doing that they'd be blowing up their account. Today they are legion. It flies in the face of how all information is freely available, how everyone has seen the same scam playing out next to them and yet there have never been so many people who simply don't want to know.
It took me years to realise that there was nothing you can say or do that will change their minds. You can even spot them in this forum, the ones who move from one get rich quick fad to the next, the ones who even actively promote overt wheezes. All we can do in the industry these days is use the suitability rules to decline the account but even then you can't win as they'll lodge a complaint against you or hound your company around the web for years shouting about how another firm is better etc!
You can't save those people. But you have to try and protect all the others. It's a free society and we are free to create new products and services and we don't want to stifle that but there is always room for improvement in policing.
I've often wondered why we bother with all the colour code warnings and symbols on food yet when it comes to financial services we make no attempt at such clarity yet poor financial health is as dangerous as poor food health.
Maybe all retail financial products should have some form of colour scale displayed at the top of any promotion or website with a public database to verdite and explain? Rather than putting the truth and explanation in the footer, have a simple colour code on the splash page?
Like lard, most people know shovelling buckets of it into your face is going to damage you but we like lard and know we have a habit of stuffing a bit too much. We put nice big visual warnings to help us limit the amount of lard we guzzle but we accept that nothing you can ever do will stop some people from hoovering lard relentlessly. You can't make lard illegal because of the few who are doomed from the moment they first come into contact with lard.
LooneyTunes said:
Scootersp said:
'Part' of it comes from the fact that no western government/central bank has been able to provide a populous with any interest return on their money for years.
Flip that around… do you think people have right to interest?In a more connected, accessible, and dare I say it, entitled world people have an expectation that they can have everything.
After all, investing is easy and the route to fast money and an amazing lifestyle (says some bloke on Instagram with lots of flashy shopping bags and tasteless designer gear)..
That and the rise of credit. Hell, watch a bit of trashy TV and you’ll see adverts basically saying “improve your credit score, then you can borrow more and have this amazing lifestyle”.
Scootersp said:
suddenly people are expected to do due diligence etc etc.
Why is this a problem? Why would you invest in something where you didn’t understand the risks?Not criticising you personally, but in the age we’re currently living in people seem to want the freedom of choice but have someone pick up the pieces for them when they make bad ones.
When in the past Banks, you know those professional institutions where due diligence should be their middle name, failed miserably to protect themselves they were assisted, so it could be viewed as a bit rich to then throw the due diligence phrase at individuals now?
You can argue the merits of the systems, I'd say people with money getting a little of the safe interest vs banks getting it all is preferable, that was sold to us for years when there was emphasise on savings. No one needed to do due diligence on their cash, and these days you aren't even guaranteed your cash over a certain amount. So your capital isn't even safe now let alone a risk free modest return.
It feels like a failure in any balance towards frugality, with all pressure on the borrowing and speculation side?
do you genuinely think people don't/shouldn't have a right to interest?
Scootersp said:
Well I do on the interest point yes, the way it used to work was banks needed your deposits/savings (at least in part) to lend to businesses, the bank would take the risks (ie the due diligence was on them) on the lending and charge interest at a rate where they made some money and could also pay you some interest. People were happy with this largely, it was the norm before the scenario now, where loans can just be made?
When in the past Banks, you know those professional institutions where due diligence should be their middle name, failed miserably to protect themselves they were assisted, so it could be viewed as a bit rich to then throw the due diligence phrase at individuals now?
You can argue the merits of the systems, I'd say people with money getting a little of the safe interest vs banks getting it all is preferable, that was sold to us for years when there was emphasise on savings. No one needed to do due diligence on their cash, and these days you aren't even guaranteed your cash over a certain amount. So your capital isn't even safe now let alone a risk free modest return.
It feels like a failure in any balance towards frugality, with all pressure on the borrowing and speculation side?
do you genuinely think people don't/shouldn't have a right to interest?
If people want a risk free return on investments then I’d agree that they should expect close to a risk free rate on their money (which they can and do get today). When in the past Banks, you know those professional institutions where due diligence should be their middle name, failed miserably to protect themselves they were assisted, so it could be viewed as a bit rich to then throw the due diligence phrase at individuals now?
You can argue the merits of the systems, I'd say people with money getting a little of the safe interest vs banks getting it all is preferable, that was sold to us for years when there was emphasise on savings. No one needed to do due diligence on their cash, and these days you aren't even guaranteed your cash over a certain amount. So your capital isn't even safe now let alone a risk free modest return.
It feels like a failure in any balance towards frugality, with all pressure on the borrowing and speculation side?
do you genuinely think people don't/shouldn't have a right to interest?
Risk is about far more than due diligence. You can do all the DD you want but the unexpected sometimes happens. Risk/Reward sees the party taking the risk benefit from the return and in part what you’re suggesting is that you take no risk (the bank does) yet you keep the returns. You then qualify it by saying “the safe returns”, well there aren’t many options for a risk free return (and lending to businesses most definitely is not one of them!), and the rates available reflect the risk.
You don’t need to diligence cash if you’re dealing with proper FSCS protected regulated deposit raking banks. Sure, even the £85k protection gives protection to normal savers the prospect of a UK based bank failing is virtually unthinkable (although, if you have many multiples of the FSCS limit you might pay attention to their capital position). As you say, the interest rate you’ll get is low.
Or put it with NS&I where you can protect several £m of savings from bank failure (all fully government backed) and get a nice safe return. Again the rate you’d be paid is reflective of that safety.
I sense your complaint though isn’t that safe returns aren’t available, but that you perceive that the safe return offered is too low? If so then sadly you have a problem insofar as higher returns require higher risk exposure, and if you want that then (in a low central bank interest rate environment) you have to go beyond savings.
And if you want the very highest potential returns you’re going to find yourself in the equity markets, alternative asset classes, or looking at the glossy websites of the unregulated investments. And if you do that, because you’re outside the scope of regulation, there is no choice but for the burden of diligence to fall on you.
Alternatively, ask yourself a few simple questions:
1) What rate of interest do you think savers should be entitled to?
2) Where does the money to deliver this return actually come from?
3) How do the banks cover their costs, and remain viable, if the return savers were entitled to exceeded what they could safely deliver?
It’s easy to get frustrated by low interest payments on savings (I know I do!) but the harsh reality is that a low interest rate / high inflation environment sucks for anyone wanting to keep cash in the bank. To get a higher return you need to work that money harder and take on more risk.
I wonder also how much markets have deceived people around what a "safe" rate of return is?
If you're seeing popular funds pulling 20% a year for the past five years maybe it's easy to somehow assume that a mini bond or whatever offering "only" 7% has to be safe?
I also wonder how many of the people taking on these crazy risks have a conventional S&S ISA with more conventional investments (global tracker, LifeStrategy, whatever).
If you're seeing popular funds pulling 20% a year for the past five years maybe it's easy to somehow assume that a mini bond or whatever offering "only" 7% has to be safe?
I also wonder how many of the people taking on these crazy risks have a conventional S&S ISA with more conventional investments (global tracker, LifeStrategy, whatever).
Perhaps, and the older you are I think the higher you expect interest payments to be.
It’s not that long ago that we had interest rates 5%+ (which felt low compared to what people had experienced previously), so there’s bound to be some who feel that the rates available to savers today aren’t fair. Suspect that view is also compounded by the approach recommended by pension providers of moving out of the markets and into cash as you approach retirement. Do that recently and you’ve basically set your pot on a path to erosion due to inflation.
World’s changed a lot in the past few years, even to the extent of banks being told to ensure they could handle negative interest rates. Unthinkable stuff for your typical retail client, but not for those with an eye on other parts of the world. https://www.bankofengland.co.uk/knowledgebank/what...
It’s not that long ago that we had interest rates 5%+ (which felt low compared to what people had experienced previously), so there’s bound to be some who feel that the rates available to savers today aren’t fair. Suspect that view is also compounded by the approach recommended by pension providers of moving out of the markets and into cash as you approach retirement. Do that recently and you’ve basically set your pot on a path to erosion due to inflation.
World’s changed a lot in the past few years, even to the extent of banks being told to ensure they could handle negative interest rates. Unthinkable stuff for your typical retail client, but not for those with an eye on other parts of the world. https://www.bankofengland.co.uk/knowledgebank/what...
LooneyTunes said:
Perhaps, and the older you are I think the higher you expect interest payments to be.
I don't disagree with lots of what you said on personal responsibility, but I'm just pointing out that if you look at the decades of inflation rates and decades of interest rates the status quo for years was that interest rates exceeded by and large (tracked at least) the inflation rate. So it used to be that anyone wanting to borrow money, had to pay highly for it, there was no cheap credit. Now this made people/business do more due diligence on the proposed usage of that money, business plans had to have a positive cashflow quicker to service loans. You hear at the moment the talk about rate rises effecting the growth companies out there because they don't current make profits and so debt servicing increasing could rapidly compound where they have to borrow a bit more to keep the plates spinning on the race to becoming cash generating.
Yes this higher cost of borrowing did also allow the lenders to make a profit and pass on a bit back to the savers so they retained their value of their money over time. You think this is savers expecting too much but it made sense when you needed depositors money in the bank, the bank couldn't lend out at higher rates and make their money without attracting depositors money in? No growing deposits meant no growing lending, meant no growth in profits for the bank. They needed money then to lend more.
It's not like people were expecting huge returns, they just wanted there £1000 in 1988 to grow to the amount of pounds by 1998 that they can still buy the same amount of goods.
For decades this was the norm so either government/central banks got it wrong or not optimal then, or we are not optimal now and for me, today is now worse for the regular person.
You like flipping things around so why should companies/governments by able to borrow at such low rates? who controls rates and what are the consequences of them. Well it encourages future spending to come forward, it encourages an increase in risk/speculation, it encourages asset bubbles.
In the past when we'd have seen a mass exodus of bank accounts into assets/investments/or just general spending, then we'd have seen a natural restriction in lending, the cost of borrowing would have risen and people would redeposit funds again? Now we could all transfer our funds to investment ISA's and classic cars and houses and borrowing can continue unabated, there is no (little) deposits/loan book link anymore is there?
May be it/we can all keep bumbling along as we are and this is where we should have always been, will it be better this way after all, I'm not sure, but historically the setup is unique I think and so who knows. If just feels wrong to me and not because I can't get 3-4% on bog standard savings.
I don't expect anything in life really personally we all make our own choices, but the government and bankers can control are societal and monetary boundaries and so the stability/competitiveness/strength or the economy/money and I'm not sure giving savers nothing while making credit cheap is a great thing, that's all.
Edited by Scootersp on Sunday 10th April 10:42
Edited by Scootersp on Sunday 10th April 10:43
Scootersp said:
You like flipping things around so why should companies/governments by able to borrow at such low rates? who controls rates and what are the consequences of them.
At its most simplistic, it’s the central banks that set interest rates… the rest is really just market efficiency and risk/reward at work. Remember it’s not just individuals and banks competing for return on their cash. It’s pension funds, companies, etc…
If you’re a bank wanting to attract more money as deposits you can offer higher rates. If you want to borrow money, you’ll be aiming for the lowest rate you can secure (and as a corporate probably evaluating multiple offers). Both sides of the market are competitive, and the lower the risk, the less you’ll have to fork out.
Even if you, as a banker, wanted to charge businesses a higher rate to borrowers in order to return more to depositors you’d struggle to do so. You’d be out competed by those offering cheaper money. And you’d then have the problem of having a surplus of deposits (that you still need to pay for). Of course, that same market efficiency works the other way when it comes to delivering consumer debt (where people will generally take the cheapest money they can get).
With rates being set by central banks taking a view of both national and international climate it wouldn’t be correct to say that because there has been a shift in rates over time that either they were wrong before or must be wrong now.
I would however agree that cheap credit isn’t necessarily always a good thing, but when there is liquidity out there looking for a home it will find one.
LooneyTunes said:
At its most simplistic, it’s the central banks that set interest rates… the rest is really just market efficiency and risk/reward at work.
Yes so they/government set the tone, they set the base rate off which all the lenders set theirs and go into competition with each other.So through history they've used rates to control things to a point. So in my eyes they take some credit/blame for how things are it is part of their remit isn't it, amongst other things they set rates/regulations to on average change our attitude to lending/borrowing?
So yes I think they can get it right or wrong, it's not an exact science but they can and do have influence and they should be more aware of the consequences of long term high or very low rates.
So you'd like to think they set rates to a level that's overall best for us? but is that short/medium or long term. rates at 10%, 5% or 0% give different upsides and downsides to different people, negative rates just seem crazy/illogical to me.
Scootersp said:
So you'd like to think they set rates to a level that's overall best for us? but is that short/medium or long term. rates at 10%, 5% or 0% give different upsides and downsides to different people, negative rates just seem crazy/illogical to me.
That’s exactly what the Bank of England tries to do: manage monetary policy in order to delivery a good outcome for the country.Here’s a quick overview: https://www.bankofengland.co.uk/monetary-policy
Negative rates get used when you really don’t want people hoarding cash. It’s bad enough not getting interest, but being charged to keep money on deposit (which the European banks actually do for EUR holdings when you get above normal retail thresholds) really focuses savers minds.
Interesting and informative thread as usual in the finance section, probably saved me a ton of money over the years by highlighting these "school dropout driving R8 scams".
Question for parents with kids in their teens, is anything being taught at school nowadays with regards to interest rates and personal finance etc ?
Question for parents with kids in their teens, is anything being taught at school nowadays with regards to interest rates and personal finance etc ?
LooneyTunes said:
Scootersp said:
So you'd like to think they set rates to a level that's overall best for us? but is that short/medium or long term. rates at 10%, 5% or 0% give different upsides and downsides to different people, negative rates just seem crazy/illogical to me.
That’s exactly what the Bank of England tries to do: manage monetary policy in order to delivery a good outcome for the country.Here’s a quick overview: https://www.bankofengland.co.uk/monetary-policy
Negative rates get used when you really don’t want people hoarding cash. It’s bad enough not getting interest, but being charged to keep money on deposit (which the European banks actually do for EUR holdings when you get above normal retail thresholds) really focuses savers minds.
What do you think are the right rates? rates that are around the inflation rate or even higher or much lower?
Interesting this link is a 2015 article
https://www.businessinsider.com/central-banks-mist...
Edited by Scootersp on Sunday 10th April 21:19
Scootersp said:
You seem to have no issue with their drifting towards nil or even negative rates, "it focuses savers minds", when I think it's a travesty a ridiculous policy that I genuinely can't see has an upside for us? Can you?
What do you think are the right rates? rates that are around the inflation rate or even higher or much lower?
There needs to be appropriate economic growth, but without runaway inflation.What do you think are the right rates? rates that are around the inflation rate or even higher or much lower?
Again, keeping things relatively simplistic, low interest rates (and in extreme cases negative ones) generally help growth, whereas higher ones pull inflation back into line (but at the expense of growth as they impact not only consumer spending but also a cost to business). That presents a problem when you’re faced with.situations where growth has been hit but inflation is rising, with the complexity further increased by the fact that the root cause of much of the inflation we’re seeing is non-domestic (so hard to control) and in sectors where there is significant UK exposure and knock on impact.
There’s been massive stimulus for COVID, that money has to flow somewhere… so inflation, albeit now driver harder by the war in Ukraine, was entirely predictable.
You then have the political angle. HMG have, for years, been encouraging consumer debt and facilitating first time buyers getting on “the property ladder” (that “ladder” in itself becoming an increasingly strange concept). Significant increases in interest rates would be massively damaging to families (voters!) and there will be a desire to avoid a return the the negative equity/repossessions of the past.
Equally I do remember the days when there was broad correlation between interest rates and inflation but I’ve also seen how inflation can destroy the value of personal wealth over relatively short periods of time.
I’m not an economist but think the BoE seem to have it right at the moment. The interesting thing is going to be what we see in the coming 6-12 months as I am wary of general currency devaluation if we end up with inflationary pressure —> wage increases —> real domestic inflation. There seem to be signs of this, in fact just last week I had two companies want to increase prices on the basis that “everything’s going up” (in one case there was an attempt, by a business where minimum wage labour is their main cost, to increase prices by 10% due to fuel prices and wage demands).
Fwiw, higher interest rates would benefit part of my portfolio, low rates continue to drive/maintain the value of other parts, others are about as inflation protected as I can get but deliver no real growth. Having held the view for a some time that we were heading towards high inflation/low interest rate environment that is very deliberate.
Of course it would be much easier if a saver didn’t have to really think much beyond dropping money in the bank whenever they could and see it grow in real terms, but I have no expectation that we’ll see that being an option any time soon.
The core reason for raising GBP rates right now is to ensure that the GBP doesn't weaken any further against the USD as that is the currency via which we are importing the long term inflationary issues at present. The BoE is simply going to match the FED 1:1
Neither the FED nor BoE can risk raising rates too far because then they won't be able to service the obligations on their crippling debt piles post Covid.
Domestic inflation in 2022 has never been easier to control and does not require the clumsy tool of interest rates. The entire U.K. economy now functions on the never never which makes sectorial debt the precision tool for curbing inflation. Want to slow house inflation, reduce lending or increase transaction taxes on the group primarily driving inflation. Want to slow consumer spending, just bring Klarna etc into the regulatory environment. What to slow spending on new cars, just put back some of the regulation there.
The entire last 25 years of economic growth and asset inflation has been driven by the deliberate deregulation of lending in all sectors. To reverse that you simply start slowly putting that regulation back in place.
For example, if you did want to free up monthly income among typical working families so as to create spending power to either pay for higher utilities or to tax so as to help pay for higher utility among the most vulnerable then you could simply cap the amount that could be borrowed against a new car. Put a cap at a base level which means absolutely everyone can still borrow for the most basic of cars but that above that actual money is required. Over the following three years millions of consumers will more than halve their monthly car expenditure.
Want to stop professional shoppers from taking their monthly income payment and converting it all to pay later commitments leaving them with no means to pay real bills? Put back in place the regulation that once prevented that type of lending for the exact reason that it impoverished the most vulnerable.
In 2010 we put some regulation back into house lending and introduced some targeted transaction taxes to specifically push toxic speculators out of the market. Arguably it worked well but once again we have have price inflation that is exceeding wage inflation and the ultimate responsibility of the State is to protect the housing of the poorest not to continue with the 1997 decision to deliberately inflate the values through lax credit so everyone felt rushed and would go on a huge shopping spree. So why not ratchet LTV with price? Or lock more investment capital out so that it has no inflationary pressures. What about something really aggressive like ratcheting up BTL margins again so that that sector no only stops adding inflationary pressures but delivers supply to the market that is even deflationary.
Obviously, I'm deviating enormously here but the point is that interest rates at present are a function of protecting the GBP from the USD. The price of Cable is the only actual control the U.K. has when it comes to imported energy prices.
Neither the FED nor BoE can risk raising rates too far because then they won't be able to service the obligations on their crippling debt piles post Covid.
Domestic inflation in 2022 has never been easier to control and does not require the clumsy tool of interest rates. The entire U.K. economy now functions on the never never which makes sectorial debt the precision tool for curbing inflation. Want to slow house inflation, reduce lending or increase transaction taxes on the group primarily driving inflation. Want to slow consumer spending, just bring Klarna etc into the regulatory environment. What to slow spending on new cars, just put back some of the regulation there.
The entire last 25 years of economic growth and asset inflation has been driven by the deliberate deregulation of lending in all sectors. To reverse that you simply start slowly putting that regulation back in place.
For example, if you did want to free up monthly income among typical working families so as to create spending power to either pay for higher utilities or to tax so as to help pay for higher utility among the most vulnerable then you could simply cap the amount that could be borrowed against a new car. Put a cap at a base level which means absolutely everyone can still borrow for the most basic of cars but that above that actual money is required. Over the following three years millions of consumers will more than halve their monthly car expenditure.
Want to stop professional shoppers from taking their monthly income payment and converting it all to pay later commitments leaving them with no means to pay real bills? Put back in place the regulation that once prevented that type of lending for the exact reason that it impoverished the most vulnerable.
In 2010 we put some regulation back into house lending and introduced some targeted transaction taxes to specifically push toxic speculators out of the market. Arguably it worked well but once again we have have price inflation that is exceeding wage inflation and the ultimate responsibility of the State is to protect the housing of the poorest not to continue with the 1997 decision to deliberately inflate the values through lax credit so everyone felt rushed and would go on a huge shopping spree. So why not ratchet LTV with price? Or lock more investment capital out so that it has no inflationary pressures. What about something really aggressive like ratcheting up BTL margins again so that that sector no only stops adding inflationary pressures but delivers supply to the market that is even deflationary.
Obviously, I'm deviating enormously here but the point is that interest rates at present are a function of protecting the GBP from the USD. The price of Cable is the only actual control the U.K. has when it comes to imported energy prices.
All true, DA, but whilst increased regulation could be the answer to controlling consumer liquidity I’d wager that it won’t be the answer any time soon (at least not in any meaningful way). To do so may well be in the interest of society as a whole but, with consumers addicted to easy debt, would not be welcomed.
And if you take (for example) the car finance example you gave, the screams would not just be from the masses who felt their right to borrow astonishing sums on a regular basis had been violated but also from the industries that rely on that treadmill.
And if you take (for example) the car finance example you gave, the screams would not just be from the masses who felt their right to borrow astonishing sums on a regular basis had been violated but also from the industries that rely on that treadmill.
LooneyTunes said:
All true, DA, but whilst increased regulation could be the answer to controlling consumer liquidity I’d wager that it won’t be the answer any time soon (at least not in any meaningful way). To do so may well be in the interest of society as a whole but, with consumers addicted to easy debt, would not be welcomed.
And if you take (for example) the car finance example you gave, the screams would not just be from the masses who felt their right to borrow astonishing sums on a regular basis had been violated but also from the industries that rely on that treadmill.
Agree. It's all about how you keep the economy built on 25 years of deregulation growing while pulling back on the very machine that created it. And if you take (for example) the car finance example you gave, the screams would not just be from the masses who felt their right to borrow astonishing sums on a regular basis had been violated but also from the industries that rely on that treadmill.
What I wonder about the car industry though, is how much domestically would actually be impacted by lowering the leverage available? Aside from JLR almost every premium vehicle is imported so rather than reducing the number of transactions you'd just be reducing the number of premium transactions where the bulk of the money goes overseas while increasing the number of lower transactions? You could even argue that those resources could then move across to facilitating the growth in energy efficiency such as selling domestic renewables etc
LooneyTunes said:
Alternatively, ask yourself a few simple questions:
1) What rate of interest do you think savers should be entitled to?
2) Where does the money to deliver this return actually come from?
3) How do the banks cover their costs, and remain viable, if the return savers were entitled to exceeded what they could safely deliver?
It’s easy to get frustrated by low interest payments on savings (I know I do!) but the harsh reality is that a low interest rate / high inflation environment sucks for anyone wanting to keep cash in the bank. To get a higher return you need to work that money harder and take on more risk.
1) Savers should I believe get a rate that gives them a chance to preserve their moneys worth so around the inflation rate ideally. I wouldn't say entitled to that I'd more say that the official powers that be should strive to manage the economy/set rates to assist this.1) What rate of interest do you think savers should be entitled to?
2) Where does the money to deliver this return actually come from?
3) How do the banks cover their costs, and remain viable, if the return savers were entitled to exceeded what they could safely deliver?
It’s easy to get frustrated by low interest payments on savings (I know I do!) but the harsh reality is that a low interest rate / high inflation environment sucks for anyone wanting to keep cash in the bank. To get a higher return you need to work that money harder and take on more risk.
2) It comes from the fact that then the banks have to lend at a rate above this, which means they can 3) cover costs and remain viable, banks always build in large margins on their lending regardless of the rates. I know it doesn't work like this anymore but the bank used your deposited money and paid you a fee/interest and they then charge more interest upwards to the borrower and profit the difference. Everyone does ok and the borrowers had to be more considered about if they really needed the loan as it was relatively costly?
It's not like I'm suggesting some radical setup it was pretty much the norm for decades, when banks did just fine (for the most part). Where we are now is more historically exceptional, the current environment favours borrowers/companies more than savers/individuals/pension funds (which affects ultimately individuals?) by giving them lots of cheap credit.
So one effect of this low rates policy has been to accelerate house prices, now youngsters "just have to save for a deposit", but now they can't be a regular safe saver in order to just ultimately buy a home they have to go and "make that money work harder and take on more risk" or else while they save the prices drift up by far more than their savings. Meanwhile others with some savings along with cheap credit can leverage up for BTL's causing further creep up of prices.
People advise having a emergency fund, savings parked in an accessible and 'safe' place, but that also you either leave somewhere safe and accept you'll have to top it up over time to sustain it's value, or you move that into somewhere with more risk.
Officialdom should steer it's citizens, protect them from themselves to a degree, so we have regulations on drugs and gambling etc etc where we have learnt humans aren't always the best judges of risk, and yet in my opinion we have drifted to a situation monetarily where the messages aren't, and haven't been for a long time, in our best interests.
You even suspect/allude to this,.... "All true, DA, but whilst increased regulation could be the answer to controlling consumer liquidity I’d wager that it won’t be the answer any time soon (at least not in any meaningful way). To do so may well be in the interest of society as a whole but, with consumers addicted to easy debt, would not be welcomed."
I'm not saying all this because I'm bitter I don't get 3% or something on my savings, I'm just saying that I think where we are at now is far from ideal, has long term consequences and that those assigned with steering the ship might have done better for us.
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