Savers now seek investments
The way people save has undergone a fundamental shift, but not a lot of people have noticed the change.
Traditionally, savers would put their money away into a savings
account, where the interest rate would be reasonably competitive, could
vary from time to time, with higher 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
in the higher income bracket would probably focus more on saving into an offshore bank account.
While there were additional options for tax-free saving, 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 impacted is now those savers have become investors, without realising it.
Savings rates have been slashed as the Bank of England dropped central
banking rates through the floor to the 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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