Interest rate rise: good news for savers?

The security of the capital was a plus point for Premium Bonds during a period of low inflation but as inflation rises the lack of capital appreciation puts more pressure on the yield which always seems to drag. For this reason I feel they should not be regarded as a first choice or even a second choice investment but the surprise factor does have appeal when all other savings bases have been covered.

As with many investments, you need to be wealthy to start with to make a go of stocks and shares so you can weather any storms and buy enough to make the investment worthwhile while keeping dealing costs down. Compounding the dividends back into the holding as offered by some companies can improve yields. Using an S&S ISA is a good way to start small and build up progressively with the tax advantages Malcolm has mentioned once the total capital gains tax value and the annual income exceed the normal tax exemption levels. For many people, however, a better long-term investment might be through additional voluntary contributions to a workplace pension scheme or a good with-profits life assurance policy. Many other good savings and investment products are available and NS&I products are underwritten by the UK government. The yields might not be spectacular but depending on age and circumstances that might not be the prime consideration.

You don’t have to buy and sell shares to produce income. There are plenty of funds about that invest in a spread of shares, that you keep, and that will produce an income, higher than letting it sit in a bank.

I don’t see how interest rates have really had much effect on income for any saver, unless you have a very large saving pot. £100 000 would only produce around £1000 or so a year. Who has that level of savings and, if you had, i’d expect it to be more profitably invested. What matter with interest rates is the gap between them and inflation; over the last 20 years that has been around +1 or 2% so the real income is quite low.

Many people, and a lot of pensioners, will not have the luxury of a savings pot that would ever produce a decent income; many, at best, will have enough for emergencies. This is why we must encourage people to save for their retirement from an early age, even if that may be a struggle. It will be even more of a struggle if they don’t when retirement arrives.

That’s exactly what I do, Malcolm, and have done since my mid-20s, when my father encouraged me to invest in unit trusts. I tried buying and selling shares because friends did. Yes it produced a higher yield but it did not interest me.

There are many reasons why many have not made adequate provision for their retirement including failure of pension schemes and poor health, but nowadays the obsession with spending money in our materialistic society seems to be a contributor.

But of course it benefits those who want mortgages or personal loans. Some are winners. But you cannot expect high interest rates when loan rates are low – the differential is there to cover the banks’ overheads and margin.

Is there any evidence that payments have been made when PPI has not been mis-sold? If so, the Financial Conduct Authority should be informed. The latest magazine refers to a Which? member who recovered £16k. The deadline for PPI claims has now been set and will not change.

I would have preferred if the companies that had mis-sold PPI had contacted their customers and issued refunds plus interest, rather than having legal firms spending a fortune on advertising and legally taking part of the money due to those who had been scammed.

The problem was that with many of the organisations that were alleged to have mis-sold Personal Protection Insurance, when compensation was claimed, they either did not know whether or not they had mis-sold it or they could not prove that they had not mis-sold it, so compensation was paid out. I presume that the £16,000 compensation paid to the Which? member was a refund of all the policy premiums and I also presume that there was no deduction for the fact that insurance cover had been provided since the person stated that he had not wanted payment protection. The underlying loan must have been enormous.

From the context of the article it is likely that this was PPI on a business loan.

It is a requirement that citizens of this country keep financial records so that they can pay the correct income tax. Claims for insurance that has not been mis-sold should obviously be rejected. Banks arranging payment protection cover should keep proper records or they should not be in business. If there is evidence that inappropriate compensation is being paid then this should be investigated.

From the amount of compensation already paid out [£6 bn a year for seven years according to Malcolm (above)] I find it inconceivable that a significant amount was not paid without full justification because either banks could not produce the relevant records or because proper records were not kept in the first place. It is likely that the banks were so keen to charge for PPI whether the customer requested it or not that it became an automatic administrative procedure to slip the PPI premiums into the monthly direct debit for the loan repayments in the expectation that the customer would be none the wiser. Then it all fell apart and all of us are worse off as a result. The burden of proof was on the banks to show that they had not mis-sold the policies or had made a proper fact-find of the customer’s circumstances and requirements before setting up the policy and charging for it. I expect in many cases they just gave up and conceded.

I think the emergence of claims management parasites had a lot to do with the number of claims, Malcolm, and the likelihood that many of them might have been of an expeditionary nature which, under the pressure of a scandal fomented by consumer journalism, were simply conceded. That would naturally have created a precedent and set the snowball rolling and the banks are ruing the day they followed that course of action – at our collective expense, of course..