Business Blog debt
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Borrow up to the hilt and hang tomorrow.
Be thrifty and prudent by saving your money.
Two opposing philosophies we are all familiar with, with the
latter traditionally being regarded as the better of the two
options.
But who has suffered most in the past year? Savers of
course.
Thrift and prudence have been discredited, unrewarded by the
Bank of England’s Monetary Policy Committee. Those who borrowed
heavily - especially on tracker mortgages - are quids in.
While interest rates remain at such miserly levels - and the MPC
yesterday (4) kept the base rate at the 316-year low of 0.5 per
cent - did nothing to ease the savers’ pain.
Millions of pensioners on fixed incomes and reliant on a decent
return from their hard-earned savings are being penalised for their
prudence. With banks and building societies paying rubbish rates on
instant access and branch-based accounts, there is little incentive
to save. There is no way savers can beat the rate of inflation,
unless they are willing to risk their money in equities. Stock
investors have generally outperformed savings accounts in recent
months, but who knows how long that will last. The crash of 2008/9
showed the vulnerability of owning shares.
Higher rates for bonds are available, but that ties your money
in, and over a long period, the rate could look pretty poor by the
end of the term if rates, as expected, eventually begin to
rise.
Mortgages ought to be lower than they are, but lenders are
trying to make up for their past losses, so while base rate is at
0.5 per cent, you won’t find a mortgage rate at much better than
3.5 per cent.
The temptation for savers is to spend, spend, spend. But that
could be counter-productive. Their consolation is that at least
they have a nest egg, albeit depleting. Many younger folk are so
locked in by credit card debt and huge mortgages that they have
little time to enjoy life.
Friday, March 05 2010
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