Thinking of Spending your Savings?
With cash earning next to nothing and the Bank of England telling us to spend not save, what should savers do?
Overstretched savers were infuriated by comments from Charles Bean, deputy governor of the Bank of England, last week when he suggested they should stop complaining about low rates and dip into their savings accounts and spend their capital to help boost the economy.
Bean admitted one reason interest rates have been kept so low for so long is the Bank wants to make saving unattractive and get the nation spending.
This ploy has certainly had some success. Only basic-rate taxpayers can beat the combined effects of low interest rates, tax and inflation as measured by the consumer prices index (CPI), which currently stands at 3.1%. There are no savings accounts that beat inflation on the retail prices index (RPI) measure, which is 4.7% and includes housing costs.
Bean said: “Savers shouldn’t necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them, especially those with instant access savings accounts to eat into their capital a bit. Very often older households have actually benefited from the fact that they’ve seen capital gains on their houses.”
Brian Johnson at HW Fisher, the accountant, said: “You can see the Bank’s logic as more people spending will act as a stimulus to the economy. But the public will be baffled by the mixed messages it is receiving. On one hand, we have the government saying our country needs to cut its debt, and as soon as possible. On the other we have the Bank telling us to spend, spend, spend.”
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