On a completely different topic from normal, here’s a grumpy-old-git rant.
SAVINGS…. What are ‘Savings’? Savings are assets kept aside for the future, normally money. This is usually kept in a ‘Savings account’. Keeping it in a secret place used to be the norm, but it’s a bit risky with so little trust left in the World.
Banks don’t normally actually steal our money: just make sure you read their Terms Of Business carefully or else, beware.
So, the principal is that we give our money to a bank that opens a ‘Savings account’ for us to ring-fence it. The bank invests that money and, normally, makes themselves a profit. They give you a slice of that profit, which is called ‘Interest’.
Now, a ‘Savings account’ is a place to hold your SAVINGS: remind yourself what SAVINGS are – money held for the long term, right? That could be a year, but is usually a lot longer. Maybe a whole long lifetime.
When you save money in a bank, the interest you earn is usually taxed which reduces it by between 20 and 40 percent. This usually means that you are actually just about keeping place with inflation but could be loosing money if the interest rate less tax is below the rate of inflation in the economy. Ideally, your interest would keep your savings just above the inflation rate.
If banks did this, it would be A Good Thing for most savers. But do they?
All the banks compete for customers, so they advertise big generous rates if you open a ‘Savings account’ with them. Remember that a ‘Savings account’ is long term. So you open a new ‘Savings account’ with the Bigfat Bank PLC, and for about a year enjoy the excellent interest rate of, say, 5%. This keeps you nicely just ahead of inflation, so you aren’t losing money.
BUT, here’s the rub….
You happen to check your ‘Savings account’ balance and find that, instead of getting £100 interest this month, you have only received £30. You call the bank…. The interest rate has been dropped for existing customers only. But you can open a new savings account at 4% interest rates if you like!!!
So you go off in a huff and open a new account with Biggerfatter Bank. And a year later it all happens all over again.
This is a rip-off and an expensive pain in the neck. I have opened and closed about 10 so-called ”Savings accounts’ in the past 3 years because of this.
Wouldn’t it be a good idea if banks were banned from calling a product a ‘Savings account’ if the interest rate wasn’t going to be maintained at a competitive level?
Perhaps we should take our banks to the Trade Description people on the grounds that what they call ‘Savings account’ are not that at all, but are marketing devices to get people sucked in, that become a great profit generator when they drop the interest rate a year or so later.