How savers are unwittingly becoming investors
The way people save has undergone a fundamental shift, but not a lot of people have noticed the change.
Traditionally, people would put their savings away into a savings account, generally a higher interest account, with the highest rate accounts offering higher returns the less you touched your money (ie, notice accounts).
Those people with a lot of money to save would often look to save their money in multiple accounts with multiple savings providers, and those paying higher tax put their savings into offshore banking.
While there were additional tax-free interest savings options, such as TESSA’s, PEP’s, then ISA’s, and variations on savings such as the premium bonds, that was as complicated as it got.
Those who did not want to invest in stocks and shares, mutual funds or index funds, futures, bonds, or other investment vehicles as part of a portfolio, remained just savers.
What has happened since the financial crisis is now those savers have become investors, without realising it.
Savings rates have been slashed as the Bank of England lowered interest rates to record lows of 0.5% - with both current account and savings account rates following suit.
The result? Most current accounts now pay 0% interest, and savings accounts rarely offer more than 1.5% .
However, many savings providers are now offering higher rate savings through fixed rate bond accounts, where interest rates can be 4% or more above the Bank of England’s base rate, so long as you lock you money in to the account for two, three, or five years.
The result is a major change in the savings landscape that few have even noticed, as savers are now finding themselves forced into putting their money into bonds for a fixed term. In effect, they are now investing in investment products, rather than saving in savings products.
The surprise is that only a few savings and investment brokers have noticed this change
While some commentators have suggested that 2009 saw the growth of green shoots in the economy, others remain adamant that we are looking at a W shaped recession.
Either way, it looks like the savings landscape is not going to change any time soon, and that fixed term plans will continue to force savers to become investors in all but name.
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