Is it too much? UK EuroMillions ticket-holder wins £111.7m

Not usually, else banks wouldn't make money.

Depends. If it's something that enables you to get a high interest account only accessed by having a certain (high) amount in the bank, it could work. If you could 5% interest somewhere and the mortgage rate was below that, you'd be conserving money.

Does seem like a marginal case, though.
 
Depends. If it's something that enables you to get a high interest account only accessed by having a certain (high) amount in the bank, it could work. If you could 5% interest somewhere and the mortgage rate was below that, you'd be conserving money.

How would you be conserving money by lending it out in mortgages at a lower rate than you're borrowing it for?
 
How would you be conserving money by lending it out in mortgages at a lower rate than you're borrowing it for?

You'd gain money on the interest on the savings, and a proportion of that, not the full amount, would cover the mortgage.

I could be being a complete idiot, but

YearSavingsMortgage
5.0%4.0%
1£ 500,000.00£ 500,000.00
2£ 525,000.00£ 520,000.00
3£ 551,250.00£ 540,800.00
4£ 578,812.50£ 562,432.00
5£ 607,753.13£ 584,929.28
6£ 638,140.78£ 608,326.45
7£ 670,047.82£ 632,659.51
8£ 703,550.21£ 657,965.89
9£ 738,727.72£ 684,284.53
10£ 775,664.11£ 711,655.91
Saving£ 64,008.20
 
Nope, the bank would lose money there, think about it... it's the customer that earns money from savings.

Are you a bank? why would you care about losing money? lol

Although....in reality, the numbers don't work like that, as the Borrowing would be reducing all the time, so the 4% interest would be applied on an amount constantly reducing with each payment.

And if you take ALL the interest increase on the savings out then the increased per year would also be fixed, and not increase year by year. But even at that, you are getting £25k per year in interest, to offset a £20,000 interest from the mortgage, so there is a £5,000 decrease in the first year and then a slightly larger one the next and so forth.
 
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I think most people care about losing money, if you don't then feel free to send me some of yours.

Most people do, but most people are not the bank.

And the bank makes money from OTHER people. You are not the only customer.

Most people don't have millions in savings to do the above. I feel like you are doing that dowie thing and not looking at the facts and moving the goal posts....
 
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You'd gain money on the interest on the savings, and a proportion of that, not the full amount, would cover the mortgage.

Nope, the bank would lose money there, think about it... it's the customer that earns money from savings.

Are you a bank? why would you care about losing money? lol

Although....in reality, the numbers don't work like that, as the Borrowing would be reducing all the time, so the 4% interest would be applied on an amount constantly reducing with each payment.

And if you take ALL the interest increase on the savings out then the increased per year would also be fixed, and not increase year by year. But even at that, you are getting £25k per year in interest, to offset a £20,000 interest from the mortgage, so there is a £5,000 decrease in the first year and then a slightly larger one the next and so forth.


I think dowie’s original point was from the perspective of the bank, not as a customer, so you're talking past each other.

He was saying, “it's not in the bank’s interest to offer savings rates higher than their mortgage lending rate”.

And while you might find some instances where someone with a fixed-rate mortgage benefits from a sudden base-rate change that allows their savings rate to exceed their borrowing rate, it doesn't happen that often (or last for long if it does happen).

E.g. Santander, at the moment, is offering 4.20% AER on a 2-year fixed ISA, but their 2-year fixed rate mortgage is 5.04%.

This is why most people who "invest in assets to pay for their liabilities" won't be leaving that money in a savings account. In theory, it can make sense to use investment returns to pay for credit rather than buying things outright, but depending on the investment, there's going to be an increased level of risk.
 
And the bank makes money from OTHER people. You are not the only customer.

Most people don't have millions in savings to do the above.

Nope, that's just not how banks work. A bank is not generally going to just let you arb them like that for fun because, well, meh we'll make money from OTHER people but we feel like making an exception and incurring an obvious loss for fun with this millionaire by simultaneously lending them money at a low rate and then paying them a higher rate for them to deposit it back with us.

In fact, the reality is the opposite in general, at lower amounts you may well find some promotional rates - switch your current account and pay your bills with us and we'll pay X% with limits to it.

What you're saying is akin to your local shop selling you stuff at a lower price than they paid at the wholesaler - why would they want to do that in the general case? The wouldn't save for perhaps some promotions. It's kinda fundamental to being a shop that they sell things for more than they paid for them. Likewise, it's kinda fundamental to being a bank that they're lending for more than they're borrowing.
 
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Nope, that's just not how banks work. A bank is not generally going to just let you arb them like that for fun because, well, meh we'll make money from OTHER people but we feel like making an exception and incurring an obvious loss for fun with this millionaire by simultaneously lending them money at a low rate and then paying them a higher rate for them to deposit it back with us.

In fact, the reality is the opposite in general, at lower amounts you may well find some promotional rates - switch your current account and pay your bills with us and we'll pay X% with limits to it.

What you're saying is akin to your local shop selling you stuff at a lower price than they paid at the wholesaler - why would they want to do that in the general case? The wouldn't save for perhaps some promotions. It's kinda fundamental to being a shop that they sell things for more than they paid for them. Likewise, it's kinda fundamental to being a bank that they're lending for more than they're borrowing.

Well, since TIME moves forward and rates move with it..and most of us lock in a mortgage rate for a fixed 2, 5 or 10 year period.

For the last decade, when the interest rate was on the floor, this wouldn't work, but currently, let's say I won the lottery now....and use my own house as an example, as I already locked in my rates at 3.5% until the end of the term, I can get savings interest rates much higher than 3.5%. It works fine.

Yes, i know what you are going to say, you are going to say that doesn't work if you had to take out a new mortgage today....but i am using myself as an example. So yes, I know it is dependent on the rates going up, but right now....the fact is that they are and expected to for the coming months at minimum.

Time is a variable here, you don't take 1 snap shot of the rates on 1 fixed date, but because you can fix your mortgage rates, and also able to move your savings around in the future. With the interest rates heading in an upwards trajectory, this can work, in my example, it does work. There are people who gives out higher interest, and there are people who offer a lower interest rate. You don't need to keep your savings at the same bank as your mortgage. Actually I have a 5% savings account at Barclays and my mortgage is with them at 3.5%....granted, the savings cap is lower than the mortgage balance. Keep the rest at another savings account at 3.7%, which is still higher than my mortgage rate.

And yes, I know what you are going to say, if it goes down, then you are stuffed....well, not really, then you just pay the mortgage like everyone else, or pay it all off in 1 lump sum.
 
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Well, since TIME moves forward and rates move with it..and most of us lock in a mortgage rate for a fixed 2, 5 or 10 year period.
[...]
Time is a variable here, you don't take 1 snap shot of the rates on 1 fixed date, but because you can fix your mortgage rates, and also able to move your savings around in the future.

You can fix either (from the bank's pov this is just an interest rate swap), it's not particularly relevant to the point... I mean sure you can engage in speculation re: rates, no one argued that you couldn't, doesn't change the fundamentals re: the bread and butter of banking, taking deposits and making loans.

There is no free lunch here, this is just day 1, week 1 basics of finance. You're hardly going to be the first person to have questioned what if we can borrow some money and invest it, if you want to do that you need to take on risk/speculate. Ditto to people who then look at exchange rates and think oooh I could borrow in X currency at a lower interest rate... again no free lunch there either, learn what an FX forward is and how they're priced etc..
 
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Nope, the bank would lose money there, think about it... it's the customer that earns money from savings.
Correct me if I am wrong but money is created when banks lend out money it's not the savers money we are borrowing although that helps the liquidity needed by the bank of England
Btw I do mean correct me if I am wrong, plucking this money out of thin air was news to me a while back

http://www.bondeconomics.com/2019/12/yes-banks-create-money-out-of-thin-air.html?m=1
 
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Correct me if I am wrong but money is created when banks lend out money it's not the savers money we are borrowing although that helps the liquidity needed by the bank of England
Btw I do mean correct me if I am wrong, plucking this money out of thin air was news to me a while back

http://www.bondeconomics.com/2019/12/yes-banks-create-money-out-of-thin-air.html?m=1

This is slightly tangential and`a potential can of worms as you can get into all sorts of conspiracy theory rabbit holes with this stuff, I wouldn't frame is as created out of thin air (else why would any bank ever collapse) but fractional reserve banking does create money, it still requires liquidity to do so. They don't necessarily need to rely on savers per se, they can borrow from other banks (or indeed issue debt) - see for example Northern Rock, they sold lots and lots of mortgages (and didn't have sufficient customer deposits) so were reliant on the interbank market for funds... of course when banks stopped lending to each other then that (relative) lack of customer deposits was a bit of a problem for them and they couldn't meet their (short term) obligations. They had the assets (mortgages) on their books but that's not much good as they're rather long term things...

Of course, regardless of the source of funding, whether you're making use of customer deposits or the interbank market or issuing debt you're going to be lending those funds out at a higher rate at any point in time else how do you expect to make money. There is no free lunch in those markets (save for very brief fractions of a second) as any that existed would be almost instantly arbitraged away... so given that interbank loans and deposits will exhibit that behaviour you can't reasonably expect retail ones (which will have a bit more added on) would offer an easy free lunch either (save for some limited promotions etc..)
 
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