Crowdfunding: an attractive alternative, available now
There isn't really an excuse for the miserable returns that banks offer deposit account investors, as I pointed out in an earlier blog. But base rates, a key factor in determining retail-deposit rates, are extremely low right now.
So a very important question must be where rates will be in a year's time. Earlier this year, Mark Carney, Governor of the Bank of England, was indicating that interest rates could rise earlier than previously expected, but there seems to have been a backtracking from that position over the last couple of months. A new announcement will be made next week, and the markets will, as usual, be looking for the subtext, the implications for the longer term.
A downward influence on rates is the concern that the good UK employment figures seen over the last year may be about to deteriorate. The latest Manpower Employment Outlook Survey included the views of 2,102 employers in the UK and surveyed their employment intentions for the fourth quarter of 2014. They were asked, "How do you anticipate total employment at your location to change in the three months to the end of December 2014 as compared to the current quarter." Employers in seven of the twelve regions reported weaker hiring intentions, with the South West declining by 20 per cent and employment intentions being significantly weaker in the East and South East of England and in Scotland and Wales. Employment is a key indicator that the Bank of England takes into account when setting interest rates.
The fact that interest rates are less likely to rise than previously thought has been reflected in the savings rates of the major banks. RBS has cut its e-savings rate from 1 per cent to 0.75 per cent for balances over £25,000 and from 1 per cent to 0.5 per cent for balances below £25,000. Barclays have made a similar move and it is estimated that about 1.6 million of their customers will be £200 worse off as a result. If you leave £25,000 on deposit earning 0.5 per cent over a year, you will receive £125 of interest.
Lower interest rates are a double-edged sword. For borrowers, they are good news, but for savers, they have been a disaster, hugely reducing interest income and putting many older people under financial pressure. Person-to-business lending (P2B lending) gives savers the opportunity to increase the income on their savings dramatically and, at the same time, gives companies the money that they desperately need to grow. It is only if this money is made available that the economic recovery will be sustainable and employment will continue to grow.
Sooner or later, rates will rise. But the banks seem to be reluctant to pass on the benefit of movements in the underlying market to their customers. Think of what the oil companies do when oil prices fall: how long does it take to pass the lower prices on to the motorist? Similarly, as and when rates rise, how long will it be before the banks increase the rates they offer their depositors (currently, £1.2 billion is parked with the banks, according to Building Society Association figures)?
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