Sometimes official new releases are more revealing than they would wish to be. For example there is a planned Help To Save scheme being floated ahead of tomorrow’s Budget. As the Help To Buy scheme for houses indicates a situation in distress with house prices far too high to be affordable we are immediately on yellow alert as to the state of play in the savings market. From the BBC.
Millions of low-paid workers who put aside savings could receive a top-up of up to £1,200 over four years, the government has announced.
Employees on in-work benefits who put aside £50 a month would get a bonus of 50% after two years – worth up to £600.
That could then be continued for another two years with account holders receiving another £600.
These schemes always initially look a good idea although those who are in similar circumstances but are excluded will no doubt find it frustrating. One may also have a wry smile at the fact that this is very similar to the Labour governments plan for a savings gateway which was abandoned because it was “not affordable” But fundamentally we are left wondering why savings needs such help.
The Bank of England is not so keen
Back in September 2010 Deputy Governor Bean of the Bank of England made a right Charlie of himself in a car crash style interview with Channel 4.
Indeed when asked this question.
This bad news for savers is the point of what you are doing?
He replied “yes”.
Mr Bean continued.
“It’s very much swings and roundabouts. At the current juncture, savers might be suffering as a result of bank rate being at low levels, but there will be times in the future — as there have been times in the past — when they will be doing very well.”
Savers are still waiting Charlie! Meanwhile he revealed the plan such as it was.
What we’re trying to do by our policy is encourage more spending. Ideally we’d like to see that in the form of more business spending, but part of the mechanism … is having more household spending, so in the short-term we want to see households not saving more but spending more’.
The attempt at sympathy fell rather flat too.
“Savers shouldn’t see themselves as being uniquely hit by this. A lot of people are suffering during this downturn … Savers shouldn’t necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit.”
Charlie himself was doing the opposite as his index-linked pension grew by £522,900 that year according to the accounts published by the Bank of England. Of course he has been provided with additional work in retirement via the Bean Review of UK Economic Statistics making his pronouncements head down the ” let them eat cake” road. Or as Hall and Oates pointed out.
You’re out of touch
I’m out of time (time)
Help To Buy
Whilst lower mortgage rates can improve mortgage affordability for a time they cannot help with the issue of raising a deposit or equity. So we have the Help To Buy ISA.
If you are saving to buy your first home, save money into a Help to Buy: ISA and the government will boost your savings by 25%. So, for every £200 you save, receive a government bonus of £50. The maximum government bonus you can receive is £3,000.
Such is the desperation on this front that the providers seem willing to make a loss on it. From Moneywise.
First-time buyers can now get 4% interest from Santander’s Help to Buy ISA as the bank has today matched Halifax’s market leading best-buy rate.
These interest-rates as I shall explain later are far higher than can be got in other circumstances. Perhaps we get a clue here as to how much banks make from their UK mortgage books and can afford to subsidise deposits to get borrowers on the hook.
For those unaware of the UK system Individual Savings Accounts or ISAs offer income tax relief.
Savings and Deposit Interest-Rates
Moneywise gives us a theme that keeps being repeated or as the great Yogi Berra put it “It is just like deja vu all over again”
Banks and building societies continue to cut rates on both their fixed rate bonds and cash Isas…….On easy-access cash Isas, Post Office has cut its Online Isa rate from 1.45% to 1.2% for new savers. Virgin Money pays the top rate at 1.41% on its Defined Access Isa, but you are restricted to three withdrawals a year. Coventry BS Easy Isa pays 1.4%.
You may note that the Post Office has acted as if there has just been a Bank Rate cut of 0.25%, are they getting ready? The Bank of England records it like this.
The effective rate paid on households’ outstanding time deposits decreased by 2bps to 1.44% in January and the rate for households’ new time deposits increased by 4bps to 1.36%.
Interesting isn’t it how everybody seems to get the top rate? Perhaps they should invest everyone’s savings.. Oh hang on maybe not.
The Bank of England has chopped and changed in the savings rates used in its database ( I wonder why…) but the ISA rate nearly goes back to Charlie’s speech as we have 2.41% in January of 2011 as opposed to the 0.81% of February. So savers have continued to lose over time as interest-rates have fallen as they wonder when they will be doing very well as Charlie Bean promised? Oh and is 0.81% the new 1.4%.
How much do we save?
This is measured except the number produced includes imputed saving described as “conceptual payments” and yes our old friend imputed rents gets a mention. Well to its credit (sorry…) the Office for National Statistics tried again last month and sang along to this from Stevie V.
On this basis negative saving began in 2003 and might reasonably be considered a sign of the times and a warning. This fell to an annual rate of around -6% in 2008 before springing up like Zebedee from The Magic Roundabout to just over 5% in early 2009 in a clear reaction to the credit crunch as fear led to more saving as well as more fear at the Bank of England! Next we saved for a bit until it went negative again in late 2013 where it has remained.
Under the series including imputed saving the savings ratio is usually some 5% or so higher.
In essence official policy in the credit crunch era has been to reward debtors and to punish savers. Charlie Bean made that plain and this was reinforced in the summer of 2012 as the Funding for Lending Scheme was brought in to reduce further mortgage and savings interest-rates. Unlike Lewis Carroll it is always “Jam Today” for the UK establishment. It is a bit like the famous saying of St.Augustine.
Lord, make me chaste (sexually pure) – but not yet!
This has even moved into the world of inflation as savers have recently benefited from the fact that it has fallen. If we move beyond which measure to use then real rather than nominal interest-rates have improved especially compared to 2011 when the dilatory efforts of the Bank of England saw most inflation measures go above 5% per annum. It failed to spot that punishing workers, consumers and savers would have only one result. However of course it wants inflation higher as the game continues! The moral hazard issue continues also as Lewis Carroll reminds us.
Alice:How long is forever? White Rabbit:Sometimes, just one second
Meanwhile today we get an update on the basket for the UK official inflation measure. Apparently it is more important to include coffee pods and cream liqueur than owner-occupied housing.
I will be on Share Radio which has gone national on Dab after the 1pm news today.