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.
Does the UK face economic collapse like Japan?
The more I read about the impact of the financial crisis in the UK, the more it feels that the UK is doomed economically, and that the best option now while you have cash in Great British Sterling is to cash out and move aborad to somewhere more financially sound - ie, not threatened with collapse by the weight of its own debt.
That may seem somewhat alarmist, but despite the claims of “green shoots” earlier in the year, we have not seen any signs that the economy is returning to normal. In fact, anything but, and that at best we’re moving into a “lost decade” similar as to what happened to Japan.
Britain’s debt to GDP is spiralling out of control, and even measures to reduce costs being mooted by Labour and the Conservatives are plain in their limitations - we are in far too much of a hole to be able to dig us out even within the next Parliament. It’s going to take a full decade to even begin to expect to bring British debt to normality, and during this period, there is no reason to presume the economy will fare any better.
Repossessions continue to be high, insolvencies are expected to increase, and consumer debt is growing through credit cards and loans at a time when paying are supposedly paying off debt. Unemployment continues to increase in leaps and bounds (forget that’s its slowing - double dip, people), and rather than help employers hire, the government is actually going to tax companies more for employing people.
In the meantime, ratings agencies expect at least a further 15% fall in house prices in the UK, and at a time when the market is limping forward, the FSA wants to bring in tougher rules on mortgages, while at the same time demanding banks hoard more cash.
And that’s before we even get into the threats of deflation and unknown consequences of “Quantitive Easing”.
The result of all these pieces in play can hardly be good for Britain - worsening debt, worsening access to credit, worsening consumer spending, falling asset prices, etc. The strategies in play may be different to Japan in the 90’s, but the state of play is looking increasingly like it.
The problem, of course, is that while matters are exacerbated in the UK, these are afflictions across the world economy. So where is safe?
The answer is relative - the financial crisis is firmly rooted in the US and Europe, and while other areas have been impacted, their fundamantals have been far less knocked by comparison.
Asia remains strong and a bulwark so far against global financial collapse. While no doubt asset bubbles there are growing, they still don;t have the problem of being so invested in complex debt instruments that have so far crippled US and European banks.
Personally speaking, Thailand looks idyllic, but remains subject to Typhoons, as does much of East Asia. A good place to consider investing in, though.
South America is another emerging economy as well, not least in terms of investments, such as land for sale Brazil & property for sale Brazil. If South America itself seems a little rough, you could always consider moving towards central America, not least Panama, which remains under US control, and still offers a lot of decent property for sale Panama.
Australia or New Zealand could even be places worth considering moving to - close enough to Asia to feel the economic benefit, but heavily Anglicised.
In the meantime, now seems to be the moment to batten down the hatches or move on - economic power is clearly heading East, and to developing nations, and for those who remain, only the prophets of doom are left to comfort us.