More in this section

Granny bonds

The Chancellor takes and then gives but, as usual, timing is everything

In many ways it is savers who have ended up paying for the financial crisis that struck in 2007 and 2008.

The consequences of what happened are still playing out but one of them is very low interest rates. You do the "right thing". Save up a nest egg. And then the rate of interest you get is less than the rate of inflation.
For pensioners topping up their pension with their savings interest, income was horribly squeezed and many started having to spend some of their capital.

What banks and building societies will pay to attract deposits is a market like anything else - driven by supply and demand. And banks and building societies don't want to take in more deposits than they can sensibly lend out because they will end up losing the money that they pay out in interest. Granny Bond Pic, Ganny bond
The supply of money in the system was materially impacted in 2012 by the introduction by the Chancellor of the Funding for Lending Scheme. The Government sought to boost lending and therefore encourage growth in the economy by injecting many tens of billions of pounds into the banking system at low rates. Much lower than the prevailing deposit rates. Inevitably this drove deposit rates down.

In January this year, he introduced "Granny Bonds" for the over 65s.
Paying 2.8% for one year and 4% for 3 years, much more than you can currently get from banks and building societies. The scheme was extended at the weekend and these bonds will now remain on sale until 15 May (8 days after the General Election). The Government is prepared to increase the overall limit from £10 billion to around £15 billion. The Treasury is reporting that bonds to the value of £7.5 billion have been sold to 661,000 pensioners. The government have set what looks to be a quasi-goal of 1 million bond-holders.

So having injected money into the market and reduced savings rates, he is now sucking money out and increasing rates.

I wonder why..................??

comments powered by Disqus
Family Building Society
Ebbisham House
30 Church Street
Epsom
Surrey KT17 4NL
Follow Us