Changing interest rates

I hate to say it but you do realise that this is all… utterly meaningless, right? “Real” (as in, inflation-adjusted) interest rates are costing you ~10% of your money every year. Until you see real rates that are positive you shouldn’t have any money in this type of account at all. You get given 1% and then ten times that is taken from you, systemically!

You might want to read about financial repression here and also (and more importantly) here.

1 Like

What would you suggest people do with their spare money they’re saving for the rainy days ahead instead?

I’d rather leave my surplus for next years energy bills earning a bit extra in Marcus, than in my current account depreciating even further in value than in savings.

4 Likes

I don’t plan on dispensing specific financial advice, who would do that!, but anything inflation-protected. The economy is a mess from 15 years of QE though.

It’s not really financial advice (else your telling people not to would be deemed this too). If you’re going to tell people they shouldn’t be doing something, you should at least be prepared to offer them an alternative that you think is better. Else, why should they listen to you?

I’ll be keeping my spare change in Marcus. Because even though you’re not wrong, savings are still the best place for it in my view. Depreciation would be worse in a current account. And for this money, stocks are too illiquid and too risky. Performance over the last year hasn’t done much better than the highest savings rates either.

7 Likes

No. You can give general advice without giving specific advice. DYOR.

:man_shrugging:

Agreed

Now this only works where there are substitutes. And I can’t see any. Stocks aren’t giving 10pc+ yields, nor are bonds and both bring in risk.

So the only options I can see are:

a) take on debt because it will become more affordable to pay back (but that’s high risk and might not work)

b) find the best APR you can because, even if peniable, it is at least a few percentage points off what would otherwise be the losing rate.

A theoretical rather than practical question, but what other classes of action are available to us?

4 Likes

Any pointers on where I can find that?

Vast majority of my surplus is being pumped into pension now the mortgage is done, but there are no guaranteed returns there.

I’m general if peoole are lucky enough to be able to save anything, they need to keep some of it reasonably readily available and with no risk to the capital we’re putting aside. Instant access or notice accounts, premium bonds, etc. None of those are paying much at the moment (unless you’re very lucky in the premium bonds) so we’re all left trying to minimise the rate our money is losing value.

1 Like

Yup, and hence no specifics.

Seems to be working for a lot of homeowners. Which is, incidentally, the only way that the man in the street can access any significant amount of leverage.

Given that the difference is an order of magnitude, it feels pretty pointless.

Google for “inflation protected investments”? But that does bring us back to:

1 Like

That’s the problem isn’t it? An FSCS-protected account is mostly risk-free (some extreme tail-risk, but not any normal kind). And any other kind of financial instrument is (a) presumably quite oversubscribed right now because a lot of people figured this out already and bought other stuff, (b) has more risk that you’re unable to price because you, like the rest of us, are just a plod and not a financial services professional, and (c) we look like we are ploughing straight into a recession, deglobilisation, and potentially some significant changes in the monetary system itself.

There are no easy answers. Other than that a 1% interest rate will lose you ~10% a year.

You seem intent on telling everyone they are doing it wrong but without an alternative.

Yes, in real world terms your money is losing value. But it’s better to get 1.5% or 1.8% or whatever, than stuff it under the bed and wait for the end to come.

12 Likes

You can give general advice without giving specific advice. DYOR.

1 Like

Why bring up a topic and then refuse to engage in further discussion? People want to chat about alternatives because you brought it up.

No one is going to take any discussion here as an instruction to act, and then try to sue if it doesn’t pay out.

11 Likes

Ah, good old Carmen Reinhart. Of Reinhart and Rogoff fame. Wrote one the worst academic articles ever produced, gave credence to falsehoods surrounding government debt, and then suffered no consequences for it when their “mistakes” were discovered.

Feel free to discuss away! I’m not stopping you. If you want ideas then I suggest googling “inflation protected investments”.

Ah, the good old “Do your own research” or, in other words, “I’m unable to provide evidence to back up what I’ve said”.

8 Likes

Time to mute this topic.

1 Like

Seems a bit incendiary for an Excel rounding error! But there are other IMF papers, and indeed lots of other sources you can read for the same set of arguments, if you prefer. “Financial Repression” is a pretty easy and distinct Google search.

In any case, we could instead debate the merits/demerits of the content? It seems somewhat obvious, when one looks at GDP and debt, that the GDP is struggling to pay the debt… and so you can either (1) default, or (2) inflate.

1 Like

Just realised I muted the person many months ago, must of been for this very reason which has cropped up today :eyes::rofl: always good to know that those 1 new message prompts are from someone ya don’t need to read about

2 Likes

I’m just passionate about that specific paper because of the damage I believe it did, and hall of my degree was on it too. But I will leave it at it.

In terms of the financial repression topic, I haven’t ever really read much into it. But I am quite supportive of growth diminishing (either via inflation or GDP growth) the size of national debt. This means investments in infrastructure and other public services are very affordable over the long term.

1 Like

:man_shrugging:

That’s the theory. For evidence I encourage you to check out “real interest rates”. And if you want inflation-protected investments then you can Google for those, too, there are a ton. But that really is work for you.