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

Simon Rose sticking up for savers on BBC Radio Kent

A call for an end to deadbeat savings accounts

One persistent complaint we hear is the way in which banks and building societies manoeuvre unwitting savers into accounts paying significantly below the market rate. Although a few building societies are currently offering over 3% on savings accounts – still below the inflation rate, of course – a recent study by Defaqto found that an extraordinary two-thirds of all accounts offer interest rates below the Bank of England’s record low base rate of 0.5%.

In many cases, savers will have opened accounts that initially paid attractive rates and not noticed that, over time, the account has become steadily less competitive. It is commonplace for accounts to offer appealing introductory rates for a limited period, the bank clearly trusting that many savers will forget, or simply not be aware, that the rate will later tumble. Over half of cash ISAs pay such opening bonus rates. However, it is not only existing accounts offer lamentable rates of interest. Several savings accounts currently being advertised by banks pay as little as 0.05% … Continue Reading

Bait pricing makes suckers out of savers

The majority of savers are allowing inertia to get the better of them – and their savings. A new study from Which? shows that over 60% of savers have not changed their main savings account in the past five years. As a result, they are almost certainly getting an unattractive rate of interest.

According to Paul Davies of Which?: “The average rate for instant access accounts is still only around 0.8% – and our analysis found that 25% of accounts were paying 0.1% or less and 47% were paying 0.5% or less. This equates to £12 billion in interest that savers are missing out on each year.”

The cynical – and yes, that includes us – would argue that is exactly what the banks and building societies want. They pull in vast sums by promoting hugely attractive savings rates, hiding away the fact that they only last for limited periods. 11% of instant-access savings accounts and 14% of instant-access ISAs currently have bonus rates which drop within a year.

The worst offender is The Post Office whose Instant Savers account has a rate that drops from 2.1% to 0.1% after a year, a plunge of 95%. The Post Office is still a trusted brand among consumers but this product’s web page hardly boasts of the 0.1% rate. Others to receive dishonourable mentions are Lloyds TSB, Halifax/BoS, Barclays and Santander. … Continue Reading

Savers will not be fully protected as Southsea Mortgage & Investment Company is wound up

The Southsea Mortgage & Investment Company Ltd, a small bank that specialised in lending to property developers, has been allowed to fail after many of its borrowers ran into financial difficulties.

There are about 270 depositors with total savings of £7.4m. The Bank of England has announced that the Financial Services Compensation Scheme (FSCS) will kick in and that depositors will only receive compensation up to the statutory maximum of £85,000 but no more. This will ensure that 95% of the depositors will get all of their money back. But it is reported that 14 people will lose out. They will need to make a claim for the balance of their deposits along with all other creditors from the remaining assets.

Is the message that banks will really now be allowed to fail? Or is it that with only 14 people to lose out the Government must feel very safe that this won’t become a major national issue.

But unless there is something we are not being told about, this arrangement would seem to be unfair.  The Independent Commission on Banking is still to issue its final report and we are a long way from implementing recommendations that should make it possible for a major bank to fail without bringing down the whole economy.

Until that point making an example of 14 savers in what must be one of the smallest banks in the UK simply makes the Government look more like a bully rather an a strong advocate for responsible banking.

The message for savers is that if you want or need to deposit over £85,000 with one institution you had better move your savings to a major bank, that the Government can’t afford to let fail.

More information on the situation for depositors can be found: FSCS Q&A for depositors and HMR&C information for ISA holders

Sacrificing savers: the short-term politics of long-term pain

Pre-election, both David Cameron and George Osborne were pro-saving; they were going to rebuild the economy on a recipe of exports, investment and savings. But rather than nurturing and rewarding saving, they now seem intent on bleeding savers dry in order to support growth in an unbalanced economy.

The last decade saw record low savings with a booming economy fuelled by massive consumer debt. Now we have an economic policy that is designed to penalise savers, encouraging them to spend rather than save; our diminished savings are being sacrificed to prop up a semblance of economic growth. However at the same the Government realises that we are saving too little and we are seeing the introduction of initiatives such as NEST to encourage us to save more!

The result of this schizophrenic approach, which as ever sees political expediency triumph, is to undermine the long term financial security of millions of households. Providing the economy does eventually pick up, the retired – who contributed least to the financial crisis and are the most badly hit by current Government policy – will be the least likely to benefit. … Continue Reading

If the Bank of England won’t support savers, then the Government must!

We have moved from an era where the ethos of saving was destroyed in the pursuit of economic growth, to one where the rewards for saving are being destroyed in the fight against economic decline.

By financing our economic boom through borrowing, we were in fact paying a premium to the finance industry for the pleasure of instant gratification. The “instant gratification” was mutual; we got what we wanted now, without having to save up, and the finance industry made a profit.

The more we borrowed the more successful they were. So in order to maintain this success they made it easier and more tempting for us to borrow. In any case saving just didn’t seem to fit in the multi-media, online, instant access web-enabled world of the new millennia. … Continue Reading

Reply to the Government’s petition response

In January of this year Save Our Savers submitted a petition on the Downing Street web site. It read:

We the undersigned petition the Prime Minister to take identifiable and specific measures which will benefit savers and pension funds, thereby encouraging a culture of saving rather than borrowing in the UK

The Government has just responded. The response however totally, and some might suspect, deliberately misses the point.

Yes, they say, we know people haven’t saved; we know that the level of debt has made the UK particularly vulnerable to financial instability. We agree we need to “encourage people to save and invest”. We intend to “foster a culture of personal responsibility” with “better financial planning”. We will even provide a free annual financial health check.

Well, if we hadn’t exercised personal responsibility and successfully planned our finances we wouldn’t be losing out now. The reality is that no amount of financial planning can overcome a Government that puts its need for low interest rates and inflation before returns on peoples’ savings. Savers do not need an annual financial health check we need a return on our savings. … Continue Reading

Government response to Save Our Savers petition

Shortly after our launch in January this year, we published the petition below on the No 10 web site;

We the undersigned petition the Prime Minister to take identifiable and specific measures which will benefit savers and pension funds, thereby encouraging a culture of saving rather than borrowing in the UK.

Despite the clear economic and social benefits of a thriving savings culture, savers have been persistently ignored in their efforts to provide for the future and the UK now faces a worsening savings crisis. The frenzy of spending and borrowing that was a major factor in the collapse of UK banking has hit prudent savers hardest and there is an urgent need to create policies that support saving in the UK.

With the announcement of the election the site was closed to all new petitions and all current ones were immediately put on hold, but in that time we collected 3,110 signatures. … Continue Reading

Do you have faith in the Government to reward you for saving?

By choosing to put money aside to spend later rather than sooner, savers are not only sacrificing what they could have now; they are taking a risk. They are gambling that their savings will be worth at least as much in the future as when they first put them aside.

Of course it is every saver’s responsibility to invest their money wisely and get the best return they can.  But this is only part of the answer. The highest paying accounts cannot accommodate everybody’s savings and as any prospectus will tell you, the value of your investments can go down as well as up. In short there will always be winners and losers and as long as there is a level playing field, there are no legitimate grounds for complaint. However, all this operates within and is dependent upon the economy as a whole and there’s the rub.

Ultimately by saving you are putting your faith in the Government. Will it support savers or not? Will it, through its tax and welfare policies penalise people for having saved? Will it enable savers to at least maintain the value of their savings in line with inflation?

Promoting greater personal financial responsibility while devaluing savings is dishonest … Continue Reading