Oh dear. Can life get EVEN more depressing for the country’s down at heel savers? The answer, I fear, is a big horrible YES.
Just a week after Treasury-backed National Savings & Investments killed off new sales of its attractive tax-free savings certificates, the august Item Club – a well respected independent economic forecasting group – rubbed yet more salt into the wounds of savers.
Not by withdrawing savings products (Item Club, after all, is a cerebral financial forecaster rather than a supplier of financial products) but by painting a ‘dire’ view (‘dire’ in the eyes of savers) of where interest rates are going in the next four years.
According to Item, UK interest rates could remain at 0.5% until 2014 – provided George Osborne is able to push through his swinging spending cuts. ‘A base rate of 0.5% will begin to look like the new normal,’ proclaimed Peter Spencer, chief economic adviser to the Item Club. ‘The bottom line is that if the Treasury can deliver cuts on the scale they are talking about, then the base rate will be staying on the floor for years.’ Oh dear. Oh dear, Oh dear.
Of course, a base rate of 0.5% is good news for many homeowners who are fortunate enough to have loans linked to base rate (so called tracker loans) although some homeowners, frustratingly, have actually seen their standard variable mortgage rates (SVRs) rise during a period while base rate has remained at its lowest level since 1694. So, borrowers with SVR loans provided by Kent Reliance, Nottingham, Newcastle, Stroud & Swindon and Shepshed (all building societies) are all now paying interest of around 6%.
But savers (who outnumber borrowers by seven to one) are hamstrung by the record low base rate. They can do precious little to protect themselves from the minuscule savings rates on offer – rates which in many instances have been tickled down in recent months and which lag horribly behind both the CPI and RPI, measures of inflation. While the CPI annual rate is 3.2%, the RPI annual rate is 5%.
Certainly, some of the recent contributors to Thisismoney are singularly unimpressed. ‘Great news for debtors, not so good news for the financially competent. But, hey, that’s Britain for you,’ commented one visitor in reaction to the Item Club’s forecast of a 0.5% base rate running until 2014. Another quipped: ‘No point saving – you may as well go for that 50 inch plasma TV you’ve been eyeing.’
Precious little, however, is not quite the same as not being able to do anything. So may I implore you into action with my Blog Battle Plan:
- STAGE 1: Check the rate you are earning on your savings (I bet you don’t know the precise rate you are getting). You will be disappointed – especially in light of the fact that many savings providers have cut rates in recent months without widely informing customers of their dastardly deed (most rate cuts are only ‘advertised’ by notices in branches or in newspapers).
- STAGE 2: Check the rate you are getting against the best deals available in the marketplace, either by scrutinising the ‘best rate for your money’ table in Financial Mail’s Stats Station or by visiting thisismoney.co.uk/savings-accounts. This time I am sure you will NOT be disappointed. If you can get a better rate, don’t hang around. Seize the moment and transfer your money (although I’d think twice before switching either to Nationwide or Santander because of their administrative problems).
- STAGE 3: Think Tax: Bear in mind that you can now protect £5,100 per tax year from the taxman inside a tax-friendly Isa. Although cash Isas can’t immune you from low interest rates, they do ensure the taxman doesn’t grab a chunk of your hard-earned returns.
- STAGE 4: Think beyond deposits. Although a lot of savers (especially the elderly) do not want to take risk with their savings, attractive income can now be obtained from corporate bonds and income investment funds (both investing in the UK and on a global basis).
- STAGE 5: If you’ve had your fill of savings, pay down debt.
Financial Mail’s excellent article ‘Savers in hunt for ‘new’ NS&I’ (July 25) fleshes out some of these themes.
May I leave you with the following thought: doing something will be better than doing nothing at all.
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