Moaning about bad returns on your savings? Stop complaining – it's your fault that interest rates are so low

Ben Chu in The Independent

“Neither a borrower nor a lender be”, warned Polonius. But should he have added “saver” to that list?

The Bank of England’s latest cut in its base rate has piled even more downward pressure on returns offered by banks on cash balances. Santander this week halved the interest rate on its “123” account, one of the few remaining products on the market that had offered a decent return on savings. And there is talk of another Bank rate cut later this year, perhaps down to just 0.1 per cent. Will it be long before furious savers march on the Bank’s Threadneedle Street headquarters with pitchforks and burning torches in their hands?

They should put the pitchforks down.

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Ever-lower interest rates have failed. It’s time to raise them

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There are a number of serious misconceptions regarding the plight of savers that have gone uncorrected for too long. The first is that “saving” only takes the form of cash held on deposit in current accounts (or slightly longer-term savings accounts) at the bank or building society. The truth is that far more of the nation’s wealth is held in company shares, bonds, pensions and property, than on cash deposit.

Shares and pension pots have been greatly boosted by the Bank’s low interest rates and monetary stimulus since 2009. House prices have also done well, also helped by low rates. Savers complain about low returns on cash, yet fail to appreciate the benefit to the rest of their savings portfolios from monetary stimulus.

There’s no denying that annuity rates (products offered by insurance companies that turn your pension pot into an annual cash flow) are at historic low thanks to rock bottom interest rates. Yet, since last year, savers also have the freedom not to buy an annuity upon retirement thanks to former Chancellor George Osborne’s regulatory liberalisation. People can now keep their savings invested in the stock market, liquidating shares when necessary to fund their outgoings.

There has been talk of the latest cut in Bank base rate pushing up accounting deficits in defined benefit retirement schemes to record levels, clobbering pensioners. But this is another misunderstanding.

Yes, some of these schemes, run by weak employers, could fail and need to be bailed out by the Pension Protection Fund. And this could entail reductions in pension pay outs. Yet the larger negative impact of rising pension deficits is likely to be felt by young people in work, rather than pensioners or imminent retirees.

Firms facing spiralling scheme deficits and regulatory calls to inject in more spare cash to reduce them, might well respond by keeping downward pressure on wages or by reducing hiring. In other words, the bill is likely to be picked up by those workers who are not benefiting, and were never going to benefit, from these (now closed) generous retirement schemes.

Perhaps the biggest misconception about savings is that low returns on cash deposits are somehow all the fault of the Bank of England. This shows a glaring ignorance of the bigger economic picture.

Excess savings in the global economy – in particular from China, Japan, Germany and the Gulf states – have been exerting massive downward on long-term interest rates in western countries for almost two decades. To put it simply, the world has more savings than it is able to digest. It is this global 'savings glut’ that has driven down long-term interest rates, making baseline returns so low everywhere.

It’s legitimate to wonder whether further cuts in short-term rates by the Bank of England will have much positive affect on the UK economy. But the savings lobby seems to believe that it’s the duty of the Bank to raise short-term rates, regardless of the bigger picture, in order to give people a better return on their cash savings today. This would be madness.

Yes, the Bank of England could jack up short-term rates – but the most likely outcome of this would be to deepen the downturn. And for what? It would mean a higher income for cash savers, but survey research suggests most would simply bank the cash gain rather than spending it, delivering no aggregate stimulus to growth.

Share and other asset prices would also most likely take a beating, undermining the rest of savers’ wealth portfolios. Do savers really believe a 10 per cent fall in the value of their house is a price worth paying for a couple of extra percentage points of interest on their current accounts?

Moreover, the Bank of England’s responsibility is to set interest rates for the good of the whole economy, not for one interest group within it. As Andy Haldane, the Bank’s chief economist pointed out at the weekend, keeping rates on hold (never mind increasing them) would considerably increase unemployment. And the people who would suffer in those circumstances would probably be those who have not even had a chance to build up any savings.

No sensible policymaker or economist wants low interest rates for their own sake. They are a means to an end: to help the economy return to its potential growth rate. When growth has hit that target it will, in time, necessitate higher short-term rates to keep inflation in check.

So for short-term rates to rise, the economy needs to pick up speed. That’s what the Bank of England has been trying to achieve since 2009. Yes, the process has been frustratingly protracted, like jumpstarting an old banger with a flat battery, but the situation would have been worse without Threadneedle Street’s efforts.

If savers are frustrated with low deposit returns they should focus their anger on the global savings glut and the failure (and refusal) of governments in Asia and Europe to rebalance their domestic economies. Other legitimate targets are excessive domestic austerity here in Britain, from the coalition and current governments since 2010, which have delivered a feeble recovery since the Great Recession, and also the Brexit vote which has forced the Bank of England into hosing the economy down with yet more emergency monetary support this month.

And if they voted for the latter two – austerity and Brexit – then savers might care to look in the mirror if they want to see one of the true causes of their frustration.

Why is cricket so reluctant to embrace meritocracy?

Tim Wigmore in Cricinfo


They are still called the golden team. In 1953, Hungary came to Wembley and eviscerated England 6-3 in the "Match of the Century". A year later, in the 1954 World Cup, Hungary defeated West Germany 8-3 and Brazil 4-2. In a run of 50 games, until the Hungarian Revolution in 1956, they won 42 and lost only one - to West Germany in the 1954 World Cup final.

Yet Euro 2016 was Hungary's first appearance in a major tournament for 30 years. While Hungary's decline is sad, it has been no impediment to football's growth. The most successful sport in the world allows teams to rise and, yes, fall based on merit. So do other sports that are expanding, like basketball, rugby and even baseball.

Cricket, though, takes a very different view. This is the context of the opposition to two divisions: the sport has never been run on merit. The very concept of full membership reflects a sport that has prioritised status above on-field results. That can be seen in how each of the ten Test nations retains permanent votes in the ICC board (while the three votes shared by the 95 Associates and Affiliates are effectively worthless), and how even after recent steps to increase funding for top Associates, Zimbabwe still receive about three times as much ICC revenue as Afghanistan and Ireland.

In all previous World Cups, all Full Members have received automatic qualification as a membership privilege. That will change in 2019, but only while the tournament is contracted to ten teams. And even now cricket refuses to embrace the concept of World Cup qualification being based on a fair and equal process, as has long been the norm in other major sports. Afghanistan and Ireland have a chance to qualify automatically through the ODI rankings table, but this is only a theoretical chance: Afghanistan haven't played a single ODI against a top-nine team since the last World Cup.

The idea of Test status has historically been the most egregious illustration of cricket's contempt for meritocracy. The acquisition and retention of status has always been based on politicking as much as cricket: when Pakistan gained independence, the country had to wait five years to gain full membership. Sri Lanka could have been elevated to Test status years before 1982. And when Bangladesh finally gained Test status in 2000 - their own attempts to win Test status upon independence, 29 years earlier, had failed - they had lost five of the six ODIs they had played against Kenya, whose own application was rejected, in the three years leading up to then. When a member of the Kenyan board later made this point to an ICC official, the response was instructive: "You do not have 100 million people."

So when Sri Lanka Cricket's president Thilanga Sumathipala said, "If someone wants to come up - they can come up, that's no problem", he should really know better. Even the much-vaunted Test Challenge demands that a new team win their first ever series, something no country has ever done, and makes no mention of making the 11th Test side a Full Member too. When opponents of two divisions in Tests speak of how "the smaller countries will lose out" if divisions are introduced, it is clear they are thinking only of Full Members, and not the 95 Associates and Affiliates.
The very administrators charged with maintaining fair play on the pitch - by being vigilant against match-fixing and ball-tampering - often seem determined to avoid it off the field, by preventing emerging countries getting a fair opportunity to rise.

This aversion to merit belittles cricket. It has acted as a roadblock to new teams emerging: Ben Amafrio, executive general manager at Cricket Australia, said recently that cricket has only gained one competitive new team - Sri Lanka - in the last 40 years. In growing the sport, cricket has been dwarfed not merely by football but baseball, basketball and rugby too. This means that many wondrous talents, from Steve Tikolo to Mohammad Shahzad and Hamid Hassan, have rarely had the chance to show the best of themselves. Worse, it has meant that countless other talents have been lost to mainstream international cricket before they have ever had the chance. Names like Muralitharan, Jayasuriya, Aravinda de Silva and Sangakkara would not resonate in the same way had they been unfortunate enough to play in the pre-1982 generation of Sri Lankan cricket, when they could do nothing to gain Test status.

Rejecting meritocracy also damages the standard of cricket - not just because of the talent that does not get to play with the elite but because it allows existing Full Members to get away with an underperforming team without real consequence. This was the point made by New Zealand Cricket chief executive David White recently, when he said that two divisions would "make people look at their high-performance programmes and their systems, so the product of Test cricket will improve as well". It is a lesson that other sports long ago learned.

Meritocracy does not tolerate the stasis and misgovernance that has characterised boards in Sri Lanka, West Indies, Zimbabwe and beyond for far too long. Former Zimbabwe coach Dav Whatmore recently pointed out that ZC are "getting US$ 8-9 million a year and they've got a debt of almost $20m".

Such ICC funding would have gone much further had it been allocated to countries on the basis of merit, not status. And not only have Full Members received far more ICC money, they have also been free of scrutiny in how they spend it. The ICC has long mandated that all Associates and Affiliates submit their financial statements every year, to show where every cent of their ICC funding is going, yet only this year ensured that Full Members do the same.

Where competition has been genuinely embraced, it has led to huge improvements in the quality of the game. That much was recognised by Tim Anderson, the ICC's former head of global development, who said that at Associate and women's level, "the long-standing, merit-based event structures… have all provided building blocks for these improved performances, as has a funding model designed to incentivise and reward performance, not status", in an email to ICC members earlier this year. The contrast with the Full Members' attitude to meritocracy at the top of the men's game did not need to be spelled out.

Like the Hungarian football team and the West Indies cricket team, international teams decline. But while football and other sports allow other rising teams to take their place - and fallen giants to rise again - cricket does not. As sad as the decline of West Indies is, is it any sadder than the best players from Afghanistan, say, being denied the opportunity to play Test cricket because of the misfortune of their nationality?

Across all sports, fans and broadcasters value meritocracy, which gives games context and consequences for victory and defeat. It is this knowledge - and the reality of stagnating TV rights for all bilateral cricket, while those for domestic T20 leagues are soaring - that is now driving the ICC's attempts to introduce two divisions, and a 13-team ODI league. Without embracing the principles of merit, "cricket will lose fans and revenues, threatening its position in the marketplace," warns Simon Chadwick, a sports business expert.

So ingrained is cricket's conservatism that the notion of meritocracy in international cricket is now seen as something radical. In essence, though, it is an insurance policy to safeguard international cricket's future: both its number of competitive teams and its financial viability. Japan's victories over New Zealand and France in the Olympic rugby sevens were the latest reminder of how other sports are aggressively expanding, and in the process weaning themselves off a dangerous over-dependence upon a few countries. Yet cricket essentially retains its traditional colonial footprint, and its economics are still unhealthily reliant upon a coterie of nations - and above all India.

This means that if international cricket becomes even a little less lucrative in Australia, England and India - even if only through the rising appeal of domestic T20 leagues - the entire economy of the international game will suffer. Never mind the cricketing arguments for meritocracy; on a business level, that is poor risk management. The risk to international cricket's future lies not in meritocracy but in rejecting it.

Ever-lower interest rates have failed. It’s time to raise them

Mary Dejevsky in The Guardian

When the Bank of England reduced the base rate to a record low this month, there was one, tiny consolation for savers. The governor, Mark Carney – almost the only individual to have emerged from the Brexit shambles unscathed – said he was “not a fan” of negative interest rates. He thus seemed to rule out the nightmare – for anyone even just in the black – that we would have to pay the banks for keeping our money, rather than the other way round.

Carney’s effective rejection of negative rates – as already introduced in Japan and Sweden – was welcome. But it does little to help UK savers, who are recommended, in that infuriating phrase, to “shop around” for higher rates. Shop around if you like, but I was recently informed by two banks that rates were being reduced below 0.5%, and short of entrusting your cash to an emerging market, real options are few.

If the next thing is overt, as opposed to covert – charging for current accounts – then we will be in negative territory in fact if not in name. Then what? Despite everything I was brought up to believe, stashing cash under the mattress suddenly looks like sage planning.

The catastrophic fall in returns to savers over the past few years is, of course, a long-term consequence of the financial crisis; but a grievously neglected one. Each time rates have been reduced, the loudest voice has been that of creditors and their advocates. The supposed rationale is that low rates will get us all spending so as to get the economy growing again.

For those acclimatised to living not just with mortgages at absurdly low levels, but with overdrafts and credit-card debt as well – the benefits are evident. The cost of servicing that debt is reduced, and repay-day is again postponed. Small matter that the credit bonanza of the early 2000s was a direct cause of the financial crisis, and that we are also being urged to save for our retirement: ever-cheaper credit remains the economic growth hormone of choice.

For those of us told from childhood not to live beyond our means, who have also done our best to save for retirement, the potential effects are dire. Whenever I hear any mention of a new round of quantitative easing or a cut in interest rates, another dark cloud appears on my financial horizon – and not mine alone. We were led to expect a return on our savings that would supplement our pensions; a half of 1% even on a goodly sum will not do that.

Those now contemplating retirement on private sector, non-final salary, non-index-linked pensions – the majority – will see the rewards for their prudence not just trimmed, but slashed.

With interest rates low, investment funds look attractive



All the talk of intergenerational strife and the “plight of the millennials” omits the betrayal and impoverishment of savers, who are mostly older and have no means of increasing their income. What use is cheap credit to them? You don’t get a 1% tracker mortgage on care home fees.

The focus on house prices as the evil of evils for the young is also misleading. Low interest rates have helped push up housing costs in areas of high demand by making mammoth mortgages affordable. Saving for a deposit is the problem, and low interest rates don’t help.

There are signs, though, that the doctrine of ever-lower interest rates may be starting to run out of road. In the Financial Times last week a fund manager dared to challenge the orthodoxy that low interest rates necessarily stimulate demand. In the same paper, a reader argued that lower rates made him sit on his savings rather than spend. I suspect it has the same effect on others.

There are surely compelling reasons for a rethink. Reducing the cost of borrowing has not, in fact, led to a consumer boom, nor even to more modest growth. Without a perceptible rise in their incomes, it would seem that most people err on the side of caution. Either that, or their credit, however cheap, is maxed out.

We savers, meanwhile, are hanging on to what we have, for fear of even worse returns, and perhaps higher inflation, to come. Nor are negative rates likely to change this. The Japanese have not gone out to spend, even though this might seem a logical response; the result has rather been less money in banks and more, it is assumed, under beds.

So if ultra-low interest rates are not stimulating growth, and if they are simultaneously undermining messages about sound money and saving for retirement, how about trying the opposite? A rise in rates, perhaps?

The very idea would, of course, be greeted by warnings about mortgage defaults, repossessions, and hitting the poor disproportionately. But low rates tend not to benefit those on the brink; and an initially modest rise would offer a salutary reminder that borrowing has a cost. It could also exert downward pressure on house prices.

More immediately, it could encourage those of us in the black to indulge in a spot of so-called discretionary spending. In all, we could be reaching a point where the pluses of a rate increase outweigh the minuses. For savers, that point can’t come soon enough.

Schoolmates used to ask me about Indian trains. I can now confirm British ones are worse

Nish Kumar in The Guardian

Protesters against Southern Rail in London last month: a 2015 poll revealed nearly 60% of the public supports public ownership of the railways. Photograph: NurPhoto/Getty Images





Last week Southern Rail staff went on strike, leaving thousands of commuters facing a slightly improved service. Southern’s non-stop calamities this summer have added support to the idea of renationalisation. This debate is something I watched with great interest. I’m a standup comedian who can’t drive. I have never learned. I don’t trust my hand-eye coordination. You’re looking at someone who once dropped a cricket ball on to his own head during a routine catching practice; I don’t think it’s a great idea to have me in control of a high-speed metal death robot.

So I rely on the train system in this country. And I can tell you from firsthand experience that our train system is a mess. Carriages are full of unhappy travellers packed together like sardines, who have inexplicably paid for the privilege of being incarcerated. Periodically, everyone has to flee for cover, either by lying across the laps of the passengers lucky enough to have a seat, or by climbing into the luggage racks on the ceiling to allow the optimistically named “buffet” cart to pass through just in case anyone wants to spend £50 on a packet of crisps or a single fruit pastille.

And it’s not cheap, either. Train fares have increased way out step with inflation, meaning the percentage of our salaries we spend on train fares is now six times higher than many of our European counterparts – and that’s if you plan ahead. If you want to travel from London to Manchester, and have not booked a ticket, be prepared to sell a kidney or stay at home. Frequent train travellers have to plan ahead, booking months in advance to avoid massive fares. But there is still the risk that you will turn up on the day and the train will have lost its seat reservations for no apparent reason, and you will end up wedged between the door and the bathroom. Other than a music festival, a train is the only thing you might have to buy a ticket for and still end up spending an hour standing next to a toilet.

I feel sorry for the commuters affected by the Southern Rail chaos, especially because I hail from Croydon and have experienced that mayhem firsthand. As if being from Croydon wasn’t bad enough. When I was growing up, and periodically going to India to visit my grandmother, my classmates would often ask me about the trains. There was an exotic fascination with people sitting on top of the carriages. v

I was once ejected from a Southern train for sitting in first class when the train was full. I informed the guard that, as the section was empty and I would have happily moved for people with first-class tickets, I didn’t see what the problem was. He said: “It’s far more serious than that – you have to keep that area clear in case people in wheelchairs get on.” I apologised and said: “I didn’t realise people in wheelchairs were allowed in that section.”

He replied: “Yeah – only if they have a first-class ticket. Otherwise we kick them off as well.”

Virgin Trains East Coast staff to strike in row over jobs

It’s interesting how far we have moved on in our attitude to renationalisation. In the 1980s and 1990s, we consistently elected governments that essentially based their economic policies on the boardgame Monopoly, where public services were flogged off to the highest bidder. We were in thrall to Rich Uncle Pennybags, the moustachioed, monocle-wearing mascot we now call Mr Monopoly. (This is clearly a terrible name, by the way. It’s like me changing my name to Grandpa Nishy Mouthjoker.)

But there has been a change in public opinion, if not in government policy. A 2015 poll revealed nearly 60% of us support public ownership of the railways. Last year, the East Coast service was reprivatised. The government had taken over the running of the line after the collapse of the previous private ownership and, in public control, it had become profitable to the Treasury and reported positive customer satisfaction. It is now run by Virgin Trains and, on Friday morning, staff announced strike action over two weekends in August. This means that I can’t get back to London from the Edinburgh Fringe. Once again, comedians are punished. Truly we are the most oppressed people in society.

Frustration with the trains is inevitable, given the daily difficulties commuters face. In France, a near fully publicly owned rail system managed to give its passengers fares far lower than the UK for almost exactly the same amount of public rail subsidy between 1996 and 2010. Furthermore, the French government has invested profits in private rail companies, which then invest in companies that run British trains. Including – surprise! – Southern. As we haemorrhage money, we are lining the pockets of Riche Oncle Sacs d’Argent.

Nationalisation might seem like the preserve of old-fashioned, duffel-coat-wearing, Red-Flag-singing socialists, but it also appears to be economically efficient. Labour adoped renationalisation as a policy at its 2015 autumn conference, and Jeremy Corbyn is trying to make this a key platform in his plans to be the next prime minister. Corbyn might be on to a winner here. Time will tell. Anyway, I had better head off – I’ve got to start booking some train tickets for October 2025.