SAGA SAYS ITS TIME TO CONSIDER SAVERS AGAINMonday 5 March 2012
THREE YEARS OF LOW RATES IS ENOUGH – POLICYMAKERS SHOULD NOT PENALISE PENSIONERS AND SAVERS ANY LONGER
SAGA SAYS IT’S TIME TO CONSIDER SAVERS AGAIN
This week marks the third anniversary of record low base rates and is expected to see the Bank of England decide to leave rates unchanged at 0.5%, piling more misery onto savers. Older people in particular have been hit hard by the toxic combination of falling rates and rising inflation.
Dr. Ros Altmann, Saga Director General, comments: ‘Why should older generations be singled out to suffer more than other groups and be penalised for their past prudence. Those trying to live on their savings have seen their incomes decimated, both by falling interest rates and rising inflation. The banks have taken money away from them, but have not passed that on to borrowers either, so the economy is not benefitting as it should.’
Not clear that low rates have worked - Saga has consistently called for the Bank of England to reconsider the merits of maintaining rates so low for so long. The original aim was to provide an emergency stimulus to the economy and stave off deflation, in order to ensure that inflation did not undershoot the official 2 % target. That emergency has passed now and, even though price increases have been running at over twice the target, rates have stayed at rock-bottom levels. In addition, bank lending has been falling and the economy has been weak, so it is by no means clear that the low interest rate policy has worked.
Brilliant benefits for banks - Indeed, the big beneficiaries have been the banks. Even borrowers (apart from those who have large tracker or variable rate mortgages) have not felt the benefit of the ultra-low interest rate environment created by the Bank of England. While banks have taken advantage of the cheap money available from the Bank of England, they have not passed this on to borrowers in general.
Borrowers not benefiting much and savers squeeze continues - In particular, average overdraft rates and credit card rates are higher now than they were in 2008! The table below shows that rates paid on savings accounts are less than half their 2008 value, whereas borrowers now have to pay more for their loans. Older people are particularly vulnerable to these changes, since they are more likely to be savers than borrowers.
Saga is doing what it can to help – Dr. Altmann says: ‘Saga is trying to ensure that its own business is doing whatever it can to minimise the impact of low interest rates, so they are not hitting the over 50s too hard. Our savings bonds offer some of the best rates in the market and Saga’s own credit card interest rates have actually fallen since 2008, even though average credit card rates from other companies have increased.’
The table below shows how rates have changed:
Savings rates (average)
Overdraft rates (average)
Credit card rates (average APR)
Saga credit card rate APR
‘We urge the Bank of England to recognise that just bringing down interest rates is not a recipe for economic recovery and, indeed, could actually damage growth via the impact on pensioners’ incomes. In addition, the period of low rates has lasted far too long and, by increasing the pressure on older generations, the authorities are undermining long-term savings incentives. Low interest rates and quantitative easing have particularly hit annuity rates, resulting in over a million pensioners so far buying an annuity that will pay far less for the rest of their lives.
‘At the very least, we call on the Chancellor to extend the ISA allowance in his forthcoming budget to enable savers to shelter what’s left of their savings income from additional taxation.’
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