BoE and negative interest rates

[Guest]

So, there are rumours that the BoE is considering putting interest rates into negative values. This sounds good for mortgage owners and loan owners, but for savings it’s a different story.

I’m not sure how it affects current accounts though...

From what I have read about this, and how this will be worked out isn’t certain yet, but savers will essentially be paying the banks to hold their savings with them when interest rates are negative. It’s a rough explanation but I hope it gets the message across.

I was wondering what, or how, your investment plans were for this sort of situation. My view is that there could be a run on the banks with savers withdrawing their money and investing it into stocks, shares, bonds etc. Of course, being an opportunity, I would consider taking a loan out (I do need a new shower put in...) with such low rates...

I’m considering three options;

1 - consolidating all my current savings to my NS&I and taking 30% to bump up my current gold bullion stock

2 - begin withdrawing certain amount of cash each month to have in hand, take some to buy gold bullion, but still leave some in the savings itself

3 - just invest the whole lot into gold and be done with it! 🙌🤣

Thoughts/opinions welcomed 😁👍

[Oldun]

You are all Japanese now (just with debt owed to other nations etc rather than internally, i.e to each other and with fewer savings). The only major saving grace is that you still have control over your own currency. If you had given that up, you would be tripled, quadruple screwed...people may or may not have liked Margaret Thatcher politically, but she sure as heck saved the UK’s bacon, relatively speaking, down the line.

[lazybones]

I would say that a blend of 1) and 2) might be the way to go.

Option 3) is fairly drastic.

I only use NSI now for savings, and keep cash in hand to cover 6 months needs.

I think that Cyprus was a lesson in what can happen in a bank run.......cash points closed...branches closed....and so on.

UNlikely here ?.......think Halifax..Northern Rock..Bradford and Bingley .....mmmm

Good luck with whatever YOU choose.......David

[Martlet]

Normal savings accounts should remain above 0, they dont go negative. Its unlikely anyway, it does very little and causes problems for banks balance sheets, probably causing more problems.

[Mariner1961]

I'm currently getting 1% on an easy access account after moving from my banks 0.1% ISA. How long that will last I don't know as it looks like the highest at the moment is around 0.5% unless you're willing to lock away for a period.

 

[Melon]

Savings rates won't go negative. It makes no sense. Banks still need your savings on their books to enable them to lend money, as liquidity ratios still need to be maintained. Also the banks will well know this is temporary, so it would be suicidal to essentially force all of your best customers to leave. Plus the cost of storing your money is near zero, some general overheads only, it's not like there's paper notes in a vault somewhere. 

Savings rates may well fall further, but I can't see a world where they go negative. 

12 hours ago, lazybones said:

I think that Cyprus was a lesson in what can happen in a bank run.......cash points closed...branches closed....and so on.

UNlikely here ?.......think Halifax..Northern Rock..Bradford and Bingley .....mmmm

Halifax? What happened to Halifax? 😮

[sovereignsteve]

49 minutes ago, Melon said:

Halifax? What happened to Halifax? 😮

They went into administration and were kicked out of the football league in 2008😁

[Melon]

4 minutes ago, sovereignsteve said:

They went into administration and were kicked out of the football league in 2008😁

Nope. There was a bailout for a bunch of banks including Halifax amongst others as a result of the financial crisis, but they never went into administration and I don't believe customers ever lost access to their funds. 

[HerefordBullyun]

If negative rates go low enough They will pay you to have a loan I will take the loan buy some shiny stuff with it - win win!

[Tn21]

I do think negative interest rates are on the cards, if and when it gets deployed im not sure. 

Using negative interest rates will encourage those to spend rather then save, this will 'stimulate' the wider economy. I would like to think the banks would protect some aspect of savings as everyone would just result to withdrawing their balances if it's not protected. 

 

Buying precious metals is a good stance if negative rates appear. However I would not go all in. I think you should feel confident allocating a % into precious metals and then put it aside don't think about it untill you need to liquidate. 

[Cornishfarmer]

I’m not sure  negative will have the impact that it would have had in the ‘old days’ 

not that may of the younger generation are  saving anyway, most of their money goes straight out on mortgage, car, rent, phone etc.      And the older generation that have money savings are spending it anyway.

i can’t see that mortgage companies will go any lower with their rates.     So the best way to bump things along will be to cut VAT then most things  will be cheaper (seem better value) to get things going

[SilverApe]

I read some time ago that negative rates encouraged people to save more and thus had the opposite desired effect. We may have positive nominal rates but the real yield might be lower. 

I suspect we will get real negative rates but not nominal.

 

 

[Guest]

Apologies for just starting this topic and then walking away - work is hectic at the moment.

@Oldun - I lived in Japan for 7yrs after being awarded my PhD, around 2015/2016 was when the BoJ went into negative interest; being a cash dominant society there was little effect and so no one did a run on the banks.

@Melon - interest rates currently are around 0.01%, if they were to fall, are you suggesting that they will remain positive to stop going negative, like dropping down to 0.005%? Is that even worth the hassle?

 @HerefordBullyun - I would 100% get a loan if it meant me paying back less than what I borrowed on negative interest rate 😂 I need a new bathroom! 😅

@Tn21 - that was my thinking, convert a % into PM, withdraw a % as cash “under the mattress” and leave the rest in an account for paying credit card bills etc... 🤔

@Cornishfarmer - my parents experienced negative interest rates in the past and they said that what is happening now is very similar to back then. But you’re right by saying that the current generation don’t have much savings what with bills, rent etc. to pay. It’s making £1 do the work of £2 nowadays.

@SilverApe - surely if a savings account went into negative rate, the bank is effectively charging you to hold your savings, so how would it have an opposite effect on savers? Unless the bank takes a proportion of any gross interest owed on the savings account? The details surrounding how banks would administer negative rates isn’t clear at the moment.

Sorry for not being able to quote you individually and instead tag you, using the forum on an iPhone whilst travelling is a bit different to a pc at home 😅

 

[tafftoo]

have you looked at bitcoin?

[Guest]

33 minutes ago, tafftoo said:

have you looked at bitcoin?

Yes and it’s not my thing to be honest. Also, every four years it is halved, meaning there is 50% less is generated. That increases the value of bitcoin, and in some cases drastically, but it will eventually run out when all 21 million bitcoins have been released.

In a way it’s kinda similar to gold, thinking about it, but with gold I can hold it physically, Bitcoin I can’t 🤔

[tafftoo]

I hear what you are saying... It's certainly very volatile and it's not the same as physically holding it in your hand (I own physical silver and physical gold for this reason), however your comparision to gold is useful.  I view it very much as gold v2.0, and it should be a lot harder to conviscate.

[sovereignsteve]

11 hours ago, Melon said:

Nope. There was a bailout for a bunch of banks including Halifax amongst others as a result of the financial crisis, but they never went into administration and I don't believe customers ever lost access to their funds. 

Halifax Town FC?😉

[Melon]

1 hour ago, sovereignsteve said:

Halifax Town FC?😉

Oh you 🤣😂

[Melon]

@C60 I guess my point is that regardless of what the base rate does, I don’t foresee UK banks trying to charge customers to save money with them. It would be suicidal. 

[HerefordBullyun]

1 minute ago, Melon said:

@C60 I guess my point is that regardless of what the base rate does, I don’t foresee UK banks trying to charge customers to save money with them. It would be suicidal. 

It happened in Japan and other countries

[Melon]

1 minute ago, HerefordBullyun said:

It happened in Japan and other countries

What happened? Negative base rate or banks charging negative rates on savings? 

[HerefordBullyun]

Both

 

https://www.nytimes.com/2016/09/21/business/international/japan-boj-negative-interest-rates.html

[tafftoo]

banks charging savers to save.  If they're not saving, then they're spending into the economy

[Martlet]

3 minutes ago, HerefordBullyun said:

Both

 

https://www.nytimes.com/2016/09/21/business/international/japan-boj-negative-interest-rates.html

The article doesnt cover what happens to retail deposits or savings. I dont believe they are negative, just very low. 

We need to recognise governments are trying to balance short term demand problems, with long term policy to encourage saving.  The base rate and QE are targeted at institutions and large funds, not retail investors. 

[dicker]

I work for Investment Banks in a consultancy capacity.

The ones I work prepared for negative rates about 18 months ago (system changes, model changes etc).

I am not a retail banking expert but I suspect that it would not really work (from a PR perspective) for banks to charge customers for account balances.

Best

Dicker