Bank of England : Rate Drop!

HangTime said:
E.g. say you've got £20k stashed away. Even at 5% net interest, that's only gaining you £100 a year. You're not going to massively increase your pot like that, even 5 years down the line it'll only have grown by around £525. Obviously you'd plan on putting more away as time goes by, and getting slightly more interest, but I doubt that the rate cut will have that big an impact on people's ability to save up a deposit.
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Your maths are wrong.

5% net interest of £20,000 is £1000 per year, which is a rather considerable sum.
 
Martin Lewis has a fairly easy savings calculator. Eg. taking the example above and starting with £20k, adding £150/month on top of that.. let's see the difference between 5% and 1.5% shall we?

5%:
After saving £150 a month for 5 years and 0 months,
you will have £34,292.41 in savings
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1.5%:
After saving £150 a month for 5 years and 0 months,
you will have £30,507.57 in savings
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Almost £5k difference, that's £1,000 you're losing each year because of the cut. The difference only gets exponentially bigger the more you were aiming to put away each month. If i had that amount of savings i'd be even more annoyed than i am with the cut, now!
 
Scam said:
Martin Lewis has a fairly easy savings calculator. Eg. taking the example above and starting with £20k, adding £150/month on top of that.. let's see the difference between 5% and 1.5% shall we?

5%:

1.5%:

Almost £5k difference, that's £1,000 you're losing each year because of the cut. The difference only gets exponentially bigger the more you were aiming to put away each month. If i had that amount of savings i'd be even more annoyed than i am with the cut, now!
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Except you're not really losing it are you? It's just money you don't earn. I can remember when the BoE interest rate went up to 15%, why not calculate your "losses" based on that figure? Interest rates are set at a level appropriate for price stability and to promote economic growth in the UK economy - not to punish people for saving.
 
Energize said:
We never had 10% inflation, RPIX is real inflation, which was 3.9% last time it was calculated.



But if you don't save there's no money to spend as banks create money from deposits. The government expect banks to lend so people can spend, but they won't because their not getting enough money!



No if it's equal to inflation there's no growth, if it's less than inflation there's negative growth, if interest rates are negative but there is deflation then there is still growth.



Yeah damn those pensioners who saved all their hard working lives so they could retire in security, they should be left to live on the streets now their savings and pensions aren't giving them the income they need to afford food. Btw it's "crisis".



Which you can't do unless you have a lump sum of at least £1k which you don't want to touch. So if you are poor with small savings you are actually going to be affected more by the rate cut than the "rich".
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If you have 1k you were getting £30 a year. that won't pay for a weeks heating these days. Pathetic argument.

Yes I misspelled Crysis. Thanks for your advice but I prefer to spell it Crysis. Hopefully the English language will catch up with me at some point.


I am simply pointing out that most people have to borrow money for a house in their lifetime and as such a low interest rate is better. If you are one of the lucky few who does not need this then you likely are not suffering as much anyway.

I am a saving kind of person also and have a few K in the bank but you don't see me complaining because this is blatantly for the greater good.
 
Scam said:
Martin Lewis has a fairly easy savings calculator. Eg. taking the example above and starting with £20k, adding £150/month on top of that.. let's see the difference between 5% and 1.5% shall we?

5%:

1.5%:

Almost £5k difference, that's £1,000 you're losing each year because of the cut. The difference only gets exponentially bigger the more you were aiming to put away each month. If i had that amount of savings i'd be even more annoyed than i am with the cut, now!
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34,292 - 30,507 = 3,785 ;/
 
jamief said:
Your maths are wrong.

5% net interest of £20,000 is £1000 per year, which is a rather considerable sum.
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Hahaha, how on earth did I screw that up so badly? That's gotta be my most embarrassing post ever (especially for an Economics & Maths graduate - just as well I don't work for the BoE eh!). I thought it seemed a bit low!

Looking at things on a more realistic scale, net savings rates have probably dropped by around 3% over the last year, so around £600/year worse off. I picked £20k just as a typical figure; obviously some may be saving up bigger deposits and be losing more in lost interest (but chances are if they have a lot more than £20k, they probably already have enough for a deposit on houses outside extreme regions anyway).

Meanwhile, over the past year average house prices have dropped from ~£190k to ~£157k (rough average of NW/Halifax figures for Dec07/08, with no account for volumes, so tilt the figures a little either way if you want). So in other words, a 10% deposit will now only be ~£15.7k, as opposed to ~£19k a year ago. To be conservative, lets say it's around a £3000 difference.

Now, due to changes in the market, a 10% deposit doesn't open up quite so many products as it once did. Lenders have also been increasing margins. But even so, due to the falling interest rate, the chances are you can get as good a deal today with a £15.7k deposit, as you could with a £19k deposit a year ago (even if it is no longer anywhere near market leading, and has a heftier arrangement fee attached).

So while I messed up with my figures, I still think my general view on deposits remains - they haven't suddenly got much harder to achieve. Plus a house bought for the average price used to come with an extra ~£1.9k of stamp duty - a house bought at the average price today has no stamp duty. Again, it depends on what sort of house you are after and where you live, I'm just talking averages here.
 
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starfighter said:
I am simply pointing out that most people have to borrow money for a house in their lifetime and as such a low interest rate is better. If you are one of the lucky few who does not need this then you likely are not suffering as much anyway.
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Who do people 'have' to borrow money to buy a house, why to people 'have' to buy a house?

And if it isn't a need, which lets face it it's not, plenty of people handle fine in rented accomodation, why are the government intent on helping out those that took out loans they couldn't afford at the expense of those that are living within their means?

Although, in the governments defence, don't think they've done their usual 'banks should be passing on the rate cut in full' spiel yet...
 
SKILL said:
Who do people 'have' to borrow money to buy a house,
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Indeed, god forbid people actually save up a sensible 40% deposit instead of taking out a huge mortgage worth 10x their salary and paying 10x the value of the house in interest payments and then defaulting and causing another credit crunch. ;)
 
This just seems pointless to me, I doubt it will have a huge affect on borrowers and won't increase the amount of credit available (which is what's really needed). It just makes my savings rate even worse :(

Roll on quantitative easing.
 
You won't see me moaning about these interest cuts because it works out better for me but the government and Bank Of England need to worry more about getting the banks healthy and lending rather than interest rates. A bit of an obvious statement but in my opinion having interest rates at 5% and having credit in good supply is a hell of a lot better for the country than 1% with very limited credit. They need to solve that problem first because the longer that goes on the deeper we are going into recession.
 
simulatorman said:
Would that make any difference to the economy, I doubt it.
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Probably not otherwise the drop would have already made an impact. The only minor impact would be to savers who would then wouldn't bother and spend. I'm wondering if we'll start to see charges being impossed on savers.

The only way to recovery is for the banks to actually start lending again.
 
Your better of taking you money out of a bank in the uk and putting it in a sterling account in europe or some other nation with higher rates.
There is no point haing your money and the above calculations are wrong, you ve forgot to factor in tax rates.
If i were you i would start to look at foreign banks for your savings.
 
The Mad Rapper said:
It is completely irrelevant what they drop by. Interest rates are now useless as a means of controlling the economy.
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I'm not sure that's true as personally, with a secure job and hundreds more pounds to spend each month as a result of a cheaper mortgage combined with useless savings rates, my consumer spending is higher than it's ever been.
 
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