Wednesday, September 4, 2013

(Business) Savers: Why The Next Few Years Are Going To Be Bad For Savers

Since the 2007/08 financial crisis it has not been the best of times for savers as interest rates have been at record lows for the last four years and inflation has been creeping up but the main barrier to savers seeing some return on their hard earned cash is the government and its clear preference for borrowers primarily because it’s the biggest borrower of the lot.
Because of this simple fact, savers are forced to try their hand at risky ventures such as the stock market in light of the news that they could lose a whopping “£33bn over the next three years due to new policies on interest rates and inflation”[1].

This current state of affairs is no accident as interest rates have taken a remarkable nosedive over a sustained period as successive governments have looked to pump cheap money into the economy whenever times got tough and even when times were good.  What this has meant for savers is that their hard earned savings had lost some of its value thanks to inflation caused as a direct result of this policy coupled with the government refusal to raise interest rates in order to keep debt cheap for “households and businesses that would be crushed by higher interest rates”[2].

The rationale for this policy offered by government and the Bank of England is that such measures are needed to stimulate the economy but often the policy of flooding economy with cheap money only raises the rate of inflation whittling away at savings, increasing the cost of living in an age where wages have been stagnant. This cannot work for any sustained amount of time as the Government are not really interested in a solution but a stop gap as cost of a real solution will a lot of lost votes come 2015.

This story is important as it reveals the interests of the conservative led coalition government who are not aiming for sustainability or even growth but greater consumption fueled by cheap money refusing to learn the perils of this strategy practiced by the last government. 

In sum, it’s going to be tough for some time to be a saver with the government steadfast in the strategy of pump cheap money into the economy and holding down interest rates which may keep some sense to stability but this policy is no long term solution and savers, sadly, before anybody else, will know this before most.

[2] Herald Scotland, 2013, Such a Sorry State of affairs for savers from carney’s Strategy,

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