Even a rise in rates won’t rescue savers
AN interest rate increase this autumn looks a bit less likely, judging by Bank of England Governor Mark Carney’s comment last Wednesday that wage rises are ‘remarkably weak’. The markets now think rates may not start to rise from the current 0.5 per cent until early 2015.
Any further extension of record-low rates is welcome news for borrowers, but miserable for savers who outnumber them by about six to one. They have found it even harder lately to get any kind of return on their money in deposit accounts or cash ISAs.
Indeed, as rate checking website Savings-Champion suggests, even if base rates rise it could simply be a red herring for savers. Cofounder Sue Hannums says there has been little correlation between savings rates and base rates for some time. Despite the base rate remaining unchanged for over five years, savings rates have been plummeting and continue to do so.
More than 2,300 savings accounts have seen their rates cut in the past few years, some by hefty amounts. So even when rates do start to rise it could take hard-pressed savers some time to see their rates get back to pre-2012, never mind prefinancial crisis levels. WITH this sobering state of affairs – and a stock market drifting lower since May – some savers have been turning to other sources of income, such as retail ‘mini’ bonds.
These include the ‘burrito bond’ we reported on last week from London-based restaurant chain Chilango paying 8 per cent (with a couple of free burritos thrown in), which has already well exceeded its £1million fundraising target.
Last year companies as varied as bed retailer Warren Evans and green power supplier Good Energy, also issued bonds. They can offer attractive returns even after income tax is taken into account.
But the real issue is risk. These bonds are not protected by a large corporate balance sheet, and would rank low down in the queue for repayment if the borrowing company were to hit trouble – and you cannot run to the Financial Services Compensation Scheme for help as you can for savings held in a bank or building society account. As ever, the rule for any investor should be do not risk more than you can afford to lose. THE likelihood that interest rates will stay low a bit longer may also prompt some headscratching at the Treasury, where Ministers have been promising a new National Savings and Investments pensioner bond yielding as much as 4 per cent for a three year bond and 2.75 per cent for a one year version next January.
Such rates seem a serious stretch from where we are now. The best three year deal currently available is 2.75 per cent and one year at 2 per cent.
Should Ministers keep to the plan, pensioners are likely to storm the gates at NS&I come January. Maybe, then, the fear of losing customers will wake up the complacent banks and building societies that have been doling out such dire rates to savers. They deserve to see some competition as it has been suppressed for far too long.
Investors are turning to retail ‘mini’ bonds which can pay up to 8 per cent
NINE out of 10 of us do not have a Lasting Power of Attorney. If you don’t know what that is, then you are in good company because nearly a third of people don’t have a clue, according to a new survey by Saga Legal Services.
An LPA is a legal document recognised by all kinds of organisations, including banks and insurers that lets you appoint an attorney – a trusted friend or relative of your choice – to make decisions on your behalf if you become incapacitated and can’t make them yourself.
Without an attorney in these circumstances the only option is for a relative to apply to the Court of Protection to become your ‘deputy’. This can take four to six months and is stressful for all involved, according to Saga’s Emma Myers.
Some years ago my mother thankfully organised an Enduring Power of Attorney, a similar document that the LPA replaced in 2007.
She was in good health then. But seven years on she has had a stroke and now I am her attorney and in charge of her affairs. I can say that such a battle with red tape was an extra pressure I am grateful to have done without.