Deputy Bank of England’s advice for UK savers

A piece by Sylvia Morris in the Daily Mail newspaper on 29th September 2010 entitled “Why savers now can’t get a decent return anywhere” implies savers in the UK could end up with a better return on their savings by spending them, rather than keeping them in savings accounts!

The article reports comments made by Charles Bean, the Deputy Governor of the Bank of England. advising savers to spend some of their capital rather than try to live off the pitifully low interest rates offered to UK savers. Mr Bean stated on Channel 4 News that “Savers shouldn’t necessarily expect to be able to live just off their income in times when interest rates are low” and that “It may make sense for them to eat into their savings a bit.” (Source – Daily Mail Newspaper 29/9/10)

With inflation running around 4.7%, taxpayers are losing out, as according the Sylvia Morris’s article “Basic rate taxpayers need a now impossible 5.87% before tax on their money to maintain its value, while 40% taxpayers need 7.83%. “The Bank of England should be controlling inflation, not damaging prudent savers.” says Ros Altmann, Director General of Saga.

There seems to be a clear intent on the Bank of England’s behalf to get savers to spend to help kick start the recovery. One way to spend capital, is to invest in property as a long term investment, or carry out home improvements that will offer a return on investment, or at least help facilitate a sale at a decent price when the time comes to move. Whether it is redecorating, or upgrading your kitchen or bathroom in neutral colours, carefully thought through home improvements done to a set budget can bring decent long term rewards, whilst giving you a more comfortable and enjoyable home until such time as you decide to sell. If you do plan on spending some of your savings (as you are fed up not getting any sort of return on them at present), my advice would be to spend them on something that will make you a decent profit in the future.

For example, a tastefully done conservatory adds value to any home, whilst provides additional high quality living space. If your property is not double glazed, then installing maintenance free energy rated windows and doors is certainly worth seriously considering, as this will guarantee a much better Energy Performance Certificate, whilst cutting your heating bills, as well as making the property more aesthetically pleasing.

The Daily Mail article concludes that “after 18 months of rock-bottom base rates, official figures show home buyers have gained £26.5 billion from low mortgage rates while savers have lost out to the tune of £19.8 billlion.” The big concern is that inflation is still not under control, and banks and building societies have actually been increasing their mortgage interest rates and charges, whilst giving no incentive at all to savers to keep their money tied up.