Video: Soapbox - Savers aren't being smashed by the recession

Sound advice if you are only saving a small amount every month but those who used to live off the interest from their live-time savings, such as my in-laws, are still in a very difficult position. I personally think that a low interest rate is only good news if the banks pass it on to the consumer and start lending again. Admitedly, we should never return to the era of the 100% mortgage but still, some flexibility from the banks would kick-start the housing market again and retore consumer confidence.

Not very good for pensioners who live off their savings though, is it? Still, who cares about them, they're not really contributing much to the economy any more? Excuse the sarcasm but I'm one of them. And don't tell me that I am experiencing low inflation to compensate. No I'm not.

What a one sided view.  You should be ashamed to voice opinions that are for one section of the population only without mentioning others.  For those living on pensions and interest it is terrible.  Their income has dropped dramatically with little chance of improving it.  But who cares or helps - not you, not Gordon Brown, not the bank ..... who then?  You do not even think they are worth a mention.  What a one sided view.

Only a twin brother could think that.

Apart fom that, his views are the most lop-sided ones ever to appear on this site and can only have been aired to raise a controversy.

Next he'll be saying what a marvellous fellow Gordon Brown is for trying to dig us out the mire of his own making.

Thrift in those kids who save & are too old for CTF [Even with the R85 form in place to save tax] are RUBBISH.

For Example - Nationwide Currently pays 2.10%.

When are the Mutuals going to ENCOURAGE THRIFT???

Mr.Bowsher  you are a fool (in the worst sense). My savings income has been halved during this recession . There are few employed people who have taken a 50% cut in income. Dont write nonsense like this again please, it is ignorant and offensive and puts into question your judgement as an advisor on this site.

Absolute tosh, the so called financial "experts" live in an ivory tower and know nothing about real life.

However, we savers will be laughing when interest rates are at 8 or 9% and those with large debts are struggling.

I think Ed Bowsher has no idea what he is talking about, how can a drop in income from savings be good? some people, like myself rely on income from the interest on their savings to pay the bills.

I think if this is the standard of opinion from an "expert" than I have to seriously question this site's credibility.

I have subscribed to this site for years, but after this comment I will have serious doubts about carrying on supporting this site.

is he on planet zog?

Real inflation really hits those that rely on interest. Net interst of 2%, or less usually, does not pay for Council tax increases of 4%, water/gas/electricity/petrol increases of way above that.

It is rubbish interest. it should be back at 6%, why should borrowers, who are the cause of our misery, benefit from this recession?

Has he checked food prices?, food has increases by around 30%v on some products.

It is like living during the war, only our side are bombing us!

What an absolute fool you are.

Reading one statement on savings. £33 interest 6 months ago, declining monthly to 87p for last month.

How the hell you have a job as a financial commentator is beyond me.

Gosh, I'm out of here.

I'd very much like you to get back to us on this one Ed, and tell us why we're all wrong?

This is utter nonsense: the whole argument rests on (currently) negative RPI, but ignores positive CPI and RPIX. Now an important question - why would savers care about mortgage interest, which is the main driver for negative RPI?! The only "savers" benefitting from the negative RPI are those who are in fact net borrowers, such as mortgage-holders who also hold savings.

CPI is much the most relevant measure for savers, particularly retired savers, and by that measure all but a handful of savings accounts are delivering a negative return. CPI is at 2.3%, which is above the Government's target, and far in excess of average returns on a savings account.

One of the strengths of TMF is that individuals are free to express their opinions without needing to toe the party line. However, a quick reality check before publishing drivel like this would greatly enhance the site's standing.

Hello everyone,

Thanks for all your comments. I'm sorry this video annoyed so many people. I don't enjoy doing that. I also know that many pensioners don't have much money and they rightly had expected a more comfortable retirement when they were working.

That said, the savings environment isn't as bad for pensioners as many people think. That's because the main force of my argument still stands for pensioners. Inflation is low, interest rates are low, and even if you use CPI as the best inflation measure, you can still get a positive real return on savings if you pick the right accounts.

Re RPI/CPI: I remember when the government switched the official measure of inflation from RPI to the CPI. Everyone was outraged. Now everyone thinks that the CPI is the more accurate measure of inflation.

I accept that most pensioners aren't paying mortgage payments, but even RPIX, which excludes mortgage payments, is at 1.7%, so you can get a positive, inflation-adjusted return.

Re pensioners and savings income: Let's imagine inflation is 7% and savings interest is 7%, if the pensioner spends 7% a year on his living expenses, he is eroding the value of his capital by 7% a year. That probably won't matter as he can gradually erode the value of his capital during his retirement. But it's wrong to think that 'living off interest' isn't affecting one's wealth.

If inflation is 2%, savings interest is 2%, and the pensioner spends just 2%, he is eroding the capital value by only 2% a year. If he had been eroding the value of his capital by 7% a year when inflation was higher, you could argue that he could carry on eroding his capital at the same rate and could therefore spend more than 2% a year.

The worst scenario for pensioners is high inflation. Interest rates often aren't as high the inflation rate in that scenario and the value of savings falls. Thankfully we've not seen high inflation since the 70s. Let's hope that the current economic crisis won't lead to high inflation in two or three years' time.

Re First time buyers: It's a tough time for them as they can only get the best deals these days with a big deposit. But the plus point for them is that rental costs are falling. So that should help them to save a bit more as they attempt to build up their deposit.

Finally, I'd like to stress again that I am sympathetic to pensioners. I know that many don't have much money and I fear that pensioner poverty is only going to get worse in the years to come. That's because government finances are in a mess and politicians may be tempted to cut back on the Basic State Pension or the Pension Credit.

Regards,

Ed

Hello Max,

Thanks for your reply. I accept your finances are tight, and that's true for many pensioners. I also accept  that means testing is extremely annoying for people who have been prudent and saved up a small nest egg for their retirement.

But the above facts would be true whether inflation is at 7% or 2%. If inflation is 7%, and you spend your 7% savings interest, you're reducing the real value of your retirement lifeboat by 7% a year. If inflation is 2% and you're spending the 2% interest you receive, then you're only reducing the real value of your lifeboat by 2% a year.

If you're prepared to see the value of your lifeboat fall by 7% a year, then you can spend more than the 2% interest you receive when inflation is 2%.

But if you're not prepared to see the real value of your lifeboat fall by 7% in a year, then you shouldn't spend the 7% return when inflation is at 7%.

Moving on...

Re level of inflation: I accept that some (many?) pensioners are facing a higher level of 'personal inflation' than the CPI. So, for them, it's not a fantastic savings environment. But I'm not convinced that it's any worse than it was two years ago. That's because that personal inflation rate was then higher than the typical prevailing rates on savings accounts.

I stand by what I said yesterday. The worst savings environment in living memory - especially for pensioners - was in the early/mid 70s when inflation was high and interest rates were lower than the inflation rate for much of that time. That meant pensioners' savings were eroded very fast indeed.

Final point: I'm not asking you to have lots of sympathy for first-time buyers! But obviously we have to cover these issues for all parts of the population.

Regards,

Ed

Hello everyone

Hello Ed.

Inflation is low

Ed, I realise that Lovemoney is a consumer finance site but given the importance of inflation and how it affects everything to do with (fiat) money is there any chance that either you or better yet someone else who is actually versed in higher finance can do a piece on inflation, what it is, what the measures actually measure and most importantly, how they are manipulated? Real inflation is not low but government figures show it is because because of how they determine price rises and price drops (it's not as simple as product X is cheaper/more expensive this month, BTW).

you can still get a positive real return on savings if you pick the right accounts

You mean bonds, right? After tax I can't see any normal, easy-access accounts offering even parity with the government's made-up figure of inflation.

Re RPI/CPI: I remember when the government switched the official measure of inflation from RPI to the CPI. Everyone was outraged.

That's because during 'normal' periods of growth you should take into account the rate at which things which are normally brought with debt (houses, cars etc)increase by. By changing from RPI to CPI Labour was able to mask massive increases in the amount of debt in the system and pretend that it was all 'growth'.

Now that debt is harder to come by, the CPI is the better measure of true inflation since it is far less affected by the (un)availability of debt and the price drops of things which track that availability.

but even RPIX, which excludes mortgage payments, is at 1.7%, so you can get a positive, inflation-adjusted return

Most pensioners don't rent, own their own homes and cars and are (mainly) effected by core (real) inflation. I'll have to look at exactly what RPIX measures but for some reason I don't believe it.

Let's hope that the current economic crisis won't lead to high inflation in two or three years' time.

Given the QE and what's currently happening in the Gilt/Government bond markets I wouldn't count on it.

If inflation is 2% and you're spending the 2% interest you receive, then you're only reducing the real value of your lifeboat by 2% a year.

OK, and if in reality real inflation is much higher, say 7%?

The worst savings environment in living memory - especially for pensioners - was in the early/mid 70s when inflation was high and interest rates were lower than the inflation rate for much of that time.

Hmmm. That was another Labour mess. Funny how their governments seem to rhyme.

BTW, core inflation was at 11% while the CPI was at about 2.9% earlier in the year.

Ed, thanks, and I do appreciate your taking the time to reply. 

If interest rates and inflation were as tidily in line as the examples you give, I'd be marginally more sympathetic to your point. Somebody tell me if I'm wrong, but I believe that returns on bonds are usually hovering above inflation. At the moment it's not like that, and for many of us there's no 'wiggle room' at all. As it is, you're only advising me to keep bailing (and no argument there; it's good advice)! 

I'm not completely unsympathetic to first-time buyers either.  I was a high-earner in the seventies - very nice, I had the deposit for my first house. But I was paying something like 15% on my mortgage in the early '90s and it hurt. No way I could have got in then. I've paid off my mortgage now, thank God, but I almost envy the low rates available now. 

If you'd have entitled your piece 'Savers Aren't Being Smashed By The Recession Except Of Course For Pensioners Who Have Been Thrown To The Wolves As Usual', I'm sure that more people would have applauded it even though it would have been a bit wordy admittedly.

Anyway, thanks again and best wishes.

Max.