Savings Accounts: Past, present and future

Until the late 18th and early 19th century, there was no facility for most people to save. Banks did not accept small deposits and had no interest in anyone but the rich. Although building societies existed then, their purpose – as the name suggests – was to finance the building of houses.

The idea for savings banks evolved against a background of severe economic decline and appalling poverty. The philanthropists who set them up were motivated by a strong belief in thrift and self-help. But their establishment was not purely a philanthropic gesture; savings banks made sound economic sense. The rudimentary welfare system of the day, based on charity and local taxation, was proving woefully inadequate in tackling widespread poverty. Enabling and encouraging people to save would reduce the burden on the system and provide those who saved with a better quality of life.

The customers of savings banks were some of the poorest in society. The banks provided a secure store for their savings and rewarded saving with a good rate of interest. By helping people to help themselves, they believed saving was a force for the common good. … Continue Reading

Carols at the bank

A big thank you goes out to everyone who came along to sing songs from our Save Our Savers Christmas Song Book outside the Bank of England on Thursday, 8^th December.

The day started early with an appearance on the BBC breakfast show at 6.50am. We weren’t able to corral many people at that hour to sing the songs, so it was left to Simon and Nette Robinson to do the honours.

Following the BBC interview they stayed at the BBC and appeared on several local radio stations, including Radio Gloucester, as well as Radio 5 live just before the 9 am news.

Videos of our “choir” singing outside the Bank can be found on FT Adviser , Lovemoney and, rather unexpectedly, Arirang, a South Korean news site

… Continue Reading

Prime Minister is wrong: Credit card debt is still rising

Remember the kerfuffle over David Cameron’s speech at the Conservative Party conference? The Prime Minister had planned to say: “The only way out of a debt crisis is to deal with your debts. That means households – all of us – paying off the credit card and store card bills.” After a panic, it was changed to: “That is why households are paying down the credit card and store card bills.”

It turns out that both statements were wrong. Households are NOT paying off their plastic debt. True, headline totals have fallen. But that’s only because the banks have written off bad credit card debt.

According to the Bank of England, in September total outstanding credit card debt was £57 billion. That was £2.1 billion less than a year earlier but, over the same period, the banks wrote off over £3.9 billion in bad debts.

The reality is that, over the year, borrowers put another £1.75 billion of debt onto their credit cards. Perhaps that’s not surprising when it’s still so easy to borrow at 0% interest on credit cards. … Continue Reading

Sacrificing savings and pensions for the greater good

When the man in charge of our pension system says that pensioners and savers just have to put up with what’s currently happening to them, you know for certain that the Government has turned its back on them. Yet that is effectively what Steve Webb, the Minister for Pensions, said in an interview with Ros Altmann, claiming that the appalling returns for savers and pensioners are a necessary trade-off in order to get the economy back on its feet.

Usually we criticise politicians for being too short term in their outlook. Steve Webb, however, is focused on the future. He is rightly proud of his achievements, the triple guarantee for the basic pension and auto-enrolment, which he believes will get private sector employees saving. He is looking forward to passing legislation that will see the state basic pension rise above the level of means testing.

These changes should make pension saving more widespread and make fairer the treatment of savers at the hands of the benefit system. But they will not in themselves make saving worthwhile. That depends upon the Government making a commitment to enact economic policies that protect the value of our savings

The route to a prosperous economy … Continue Reading

Pensions: the public sector fights back, the private saver walks away

On 30^th November public sector workers plan to strike to defend their pensions. Changing public sector pension schemes so that they are indexed to CPI and not the higher rate of RPI is estimated to be equivalent to a 15% reduction in the value of a pension. On top of this millions of public sector workers are being asked to pay more towards their reduced pensions.

The private sector also has an issue with pensions. For the majority, current pension arrangements are simply not fit for purpose. The question of CPI versus RPI does not enter into it. Annuity rates have fallen by 45% over the past 16 years so all a typical pensioner can afford is a fixed income for their retirement, guaranteeing that their living standards will fall as they get older. For those currently on a fixed income the impact of inflation over the last two years has been to reduce their spending power by about 10%.

Ed Miliband is telling the public sector unions not to strike, but at least they have a weapon to wield. Workers in the private sector feel so helpless that many have simply walked away; currently only one in three contributes to a pension. … Continue Reading

Political U-turn: savers crushed not encouraged

In 2009 David Cameron promised to remove basic rate tax on savings, saying, “We need to make a really big change: from an economy built on debt to an economy built on savings… Labour’s recession policy actually increases debt and undermines savings. That is both economically stupid and morally indefensible… It is morally indefensible because it punishes future generations – and responsible savers in this generation – for the irresponsibility of others.”

Since then savers have been crushed between rising inflation and low interest rates. There has been much talk about financial education and encouraging people to save but none about how to make it worthwhile or how to protect those who are reliant on their savings.

Save Our Savers wants to see the issue of savings put back on the political agenda. Back in 2009 re-invigorating a savings culture was seen as a way out of the country’s financial troubles. Since then the crisis has deepened.

We do not believe those who say that we cannot afford to re-invigorate savings: the worse the crisis gets, the more vital it becomes. … Continue Reading

Improving equity between public and private sector pensions

A by-product of the current dispute over who should fund public sector pensions has been to shine a spotlight on the comparative inadequacy of private sector pensions.

The level of pension in the public sector is totally out of reach for those on an equivalent salary in the private sector, with a few exceptions among the ever dwindling number of private sector defined benefit schemes. Lord Hutton, who led the commission that came up with the proposed changes to public sector pensions, has said: “Pension reform must not simply become a race to the bottom”.

So what can the Government do to initiate a race to the top rather than the bottom?

… Continue Reading

Should bankers’ income tax be linked to the unemployment rate?

Steve Hilton, David Cameron’s strategy director, has been widely reported for indulging in some blue sky thinking. Apparently his ideas included scrapping maternity leave and closing down all the job centres.

Harry Alffa a supporter of Save Our Savers has also been developing some “blue sky” ideas but, we think, with far better results than Mr Hilton.

His thoughts run as follows…

Before interest rates can be raised there must be substantial economic growth.

If the bankers can “grow” their business in about a year to get back to multi-million pound bonuses, then the clever buggers should be “incentivised” to get the economy growing for the rest of us; ie link their taxes to general economic health.

Here is my very simple idea: … Continue Reading

Why it is economic for NS&I to provide index linked savings

The recent issue by National Savings & Investment (NS&I) of index linked certificates is proving very popular amongst savers and with RPI inflation currently running at 5% are probably providing the highest return on the high street.

These certificates make good financial sense for risk averse savers who want to protect the value of their money. But with interest rates so low at the moment does it make as good economic sense for the Government?

NS&I have just published their quarterly results that show the cost of their borrowing (£102.7 billion last quarter) was £200 million cheaper than if the Government had borrowed the equivalent amount through issuing gilts via the Debt Management Office (DMO), to be bought by institutional investors.

How can it be cheaper? … Continue Reading

Save Our Savers asks the MPC to act to reduce inflation

On Wednesday and Thursday this week, nine grey-suited men will meet at the Bank of England and discuss inflation and interest rates. They are Sir Mervyn King; Charles Bean; Paul Tucker; Ben Broadbent; Spencer Dale; Paul Fisher; David Miles; Adam Posen and Martin Weale.

We can only speculate whether they have a preference for Hobnobs, Digestives or those weird pink wafers you get in biscuit assortment boxes. What we can be pretty certain of, however, is that all but Martin Weal and Spencer Dale will vote to keep bank rate at just 0.5%, as it has remained since March 2009.

The MPC is charged with keeping inflation at the Government’s target of 2%, yet CPI is 4.5% and appears to be heading higher. By our estimate, the real value of the country’s savings has lost over £50 billion in the past 12 months. With an effective transfer of wealth from savers to borrowers, the thrifty and the responsible are involuntarily subsidising the profligate and foolish. As David Cameron said, while in opposition, increasing debt and undermining savings is “both economically stupid and morally indefensible”.

We have written to the nine members of the MPC, highlighting the pain being endured by savers and those on fixed incomes. … Continue Reading