I was listening to Radio 5 Live in my headphones on the way into GMTV this morning (on the back of a taxi motorbike at 6:40ish – the best way for live telly as it means traffic problems are diminished).

The money presenter Andy Verity was in a Northampton sausage shop to test the nation’s recession temperature. The last thing I heard was the results of asking listeners to send in their thoughts to finish the sentence “I’ll know the recession’s over when…” sadly I didn’t got to hear Andys response.

Two of the listener responses made me sit bolt upright (never good on a motorbike):

• I’ll know the recession’s over when petrol prices drop back to 90p/litre.
• I’ll know the recession’s over when my weekly food shop goes back to £100 from the £150 it is now.

The simple laws of supply and demand tell us that lower demand generally means prices drop, higher demand and they rise. The definition of recession is a shrinking economy, meaning LESS demand as people aren’t buying things. Deflation (falling prices) – or at least low inflation (prices not rising so quickly) – is part of this.

So the idea that the recession being over means things will get cheaper is bizarre. It should actually mean MORE money in the economy pushing to buy the same or similar amounts of goods so prices will rise. More accurate could’ve been:

• I’ll know the recession’s over when petrol prices hit £1.30/litre.
• I’ll know the recession’s over when my weekly food shop goes up to £175 from the £150 it is now.

Of course for any individual good that’s an oversimplification as other factors such as supply, transport, geopolitics and specific demand come into play, but as a general point expect prices to start rising once we hit the end of recession (whenever that will be – see Is this the summer of love?)

Comment and Discuss

The sun is shining, house prices are recovering, and overall sentiment about the economy is improving. On the surface it looks like we’re through the worst of this terrible sustained decline. Admittedly in the real economy people are still losing jobs at a ferocious pace, yet some write that off as a lag indicator; something that drags behind the rest of the economy and therefore isn’t too indicative.

Yet a good chunk of the economists & high end city workers who follow the machinations of wider macro level finance still pull a face and say “ it’s nowhere near over yet, it’s going to get worse.” In fact, at a private meeting I was at recently the mutterings of one globally renowned economist questioned whether we should plan for the potential of the western economies “doing a Japan”: in other words ten years of no growth and deflation.

So is this just a summer of love? Rather than the economy moving in an L-shape (in other words a steep decline then a levelling off) there seems to be a strong suspicion that we are in W (we’ve had a decline we’ve now had a small upturn but it’s going to start going back down again).

Much of the talk hinges on the belief the American economy is in a worse shape than we’ve so far seen, and that it’s been delaying reports coming out in a bid to get its house in order first.

Frankly I have no clue which side to take, and in truth nobody does; predictions are never set in stone. Yet it’s important to be aware that even though sentiment has improved at the moment it’s still worth being sensible and taking some safety precautions, such as spreading your savings (see the safe savings guide) and ensuring you’re as debt-free as possible (see redundancy guide and debt help guides).

Comment and discuss

One kind MoneySaver popped me an email to suggest that HSBC was now using our Savings Fountain concept in its adverts.

The fountain idea is simple: as the highest paying after-tax savings products such as cash-ISAs or regular savers allow different amounts in them, it’s all about filling up the top product then letting the rest overflow.

And lo and behold it is, here’s a screen grab…

I first came up with this analogy more than five years ago (you can see it explained here – savings fountain) and have broadcast on it many times often using a champagne fountain as a prop.

Whether this was a spontaneous similar idea or it’s been in their pot for years I don’t know, and as you can’t copyright ideas, we’ll just look at the old adage “imitation is the greatest form of flattery”.

The only problem with HSBCs lovely graphic is the fountain is about using the best-buys, whereas HSBC’s just chosen its own products – far from top players.

So if you want to do the fountain first use the top cash ISA, then top regular savings, then top savings account. Sadly HSBC don’t appear prominently in any of those.

Comment and Discuss.

Following on from my last blog about Is ICICI an Indian bank?, I was interested to read the forum discussion. There Fudge 1977 was one of many to voice the following sentiment:

“With the push to ‘buy British’, maybe you could just highlight British owned banks when referencing them.

I’m buying british where I can do which isn’t xenophobic or whatever, it just keeps people in jobs which is good for our economy. Yes, it can cost me more sometimes but I guess it’s just a moral dilemma….”

Putting aside whether you’re in favour of this (it could equally be argued there are countries in the world who need our support more than we do), what interests me is the concept of a British Bank.

Certainly it’s nowhere near as easy to define as you’d think; in a world of international global capital what counts?

Some examples of foreign British Banks…

All the following UK registered banks could be defined as overseas.

• Abbey: Owned by Spanish based Bank Santander.
• Alliance & Leicester: Owned by Spanish based Bank Santander.
• Bradford & Bingley: Owned by Spanish based Bank Santander.
• Clydesdale Bank: Owned by the National Australian Banking Corporation.
• Egg: Owned by US banking giant Citibank.
• HSBC: Floated in the UK but ultimately the “Hong Kong Shanghai Banking Corporation” so Chinese now.
• Post Office Savings: Owned by the Bank of Ireland, not covered by the UK financial services compensation scheme (see Safe Savings).
• Yorkshire Bank: Owned by the National Australian Banking Corporation.

Comment and Discuss

ICICI is a massive Indian bank, but on this site we’re only ever referring to its fully UK owned and regulated UK savings subsidiary that has exactly the same protection as any other UK savings institution (see savings safety). Yet this is what I wrote in this week’s e-mail…

New top fixed savings. Lock-in at 4.35% for 2 yrs or 4.07% for 18 mths. Updated Article
Fixed savings rates are on the up, with the best 2-yr fixes beating instant access by over 1% point; though you sacrifice access to the cash. 2-yr Fixes. UK subsidiary of Indian bank ICICI* (min. £1,000) is now joined by private bank Rothschild* at 4.35% AER (min. £20,000) Shorter Fixes: Building soc. Stroud & Swindon pays 4.07% AER until Nov 2010 if (min. £2k), while for a year National Counties is 3.91% (min. £20k) and ICICI* 3.75% (min. £1k). How safe? ALL these accounts have the full UK protection for up to £50,000 per person, per financial institution. Is it worth it? Most economists predict rates will stay very low into 2010, but after that who knows. If rates rise, fixed money is locked away, so you could lose out especially on longer fixes. FULL info, more options and instant access best buys in the Updated Guide: Top Savings Related: Savings Safety, Fixed Savings, Cash ISAs

Fascinatingly, I’ve just learned the link to Rothschild bank was massively more popular than the one to ICICI. Now some of this may be because Rothschild is a new product and therefore some people will already be up to their safe savings limit in ICICI, but I suspect the majority is due to the phrase “UK subsidiary of Indian bank”, even though later we explain that it has the same protection.

This has made me question whether it’s fair to mention ICICI’s Indian origins. When we write about Abbey or Alliance and Leicester we don’t write “UK subsidiary of Spanish Bank…” Actually the only other time I can think we currently mention it is for ING Direct which is Dutch, but then it does matter, as unlike ICICI it is not part of the UK compensation scheme.

While ICICI has had some worry over its stability (thankfully it seems to have diminished), it’s not its ‘Indianess’ that causes worry, no more than those Building Societies with stability worries have them because they’re British. And in all cases the protection is the same.

So I’d love your views, is it time to drop ICICI’s Indianess… as it unfairly puts people off?

Comment and Discuss

How this site is financed. Any links with a * by them are affiliated. That means go via this link and a contribution may be made to MoneySavingExpert.com, which helps it stay ad-free and free to use. You shouldn’t notice any difference, the links don’t impact the product at all and the editorial line (the things I write) is NEVER impacted by it. If it isn’t possible to get an affiliate link for the best product, it’s still included in exactly the same way. As I believe transparency is important, I’m including the following ‘un-affiliated’ web-addresses for the same things: iciciukpromotions.com, rothschildreserve.co.uk. Read more about this in how this site is financed.

Two months and no base rate cut. Not surprising I suppose as now we’re at 0.5% there’s not exactly anywhere for rates to go. Yet it’s the long term that’s more concerning, as we adapt to this low interest rate, low inflation (or even deflationary) environment, the shock once rates return even just back to where they were a year ago could be a problem…

It won’t be quick

Rates are unlikely to move for the moment.

• Not much room to drop rates.
• Economic stimulus still needed so rates aren’t going up.
• A need for stability.
• We’ve switched to printing money (or ‘quantitative easing’ to dress it in its official disguise.)
• There’s a need to wait and see if quantative easing is working.

Add to that the Bank of England’s latest inflation report, which assumes that base rates will still be 0.5% into 2010, and economists have read as a strong signal moves aren’t planned for a while yet.

Of course the only certain thing in the current climate is the uncertainty, and there’s the question of still-high CPI inflation, but on the balance of probability it seems the most likely path.

Can we cope with base rate rises?

So for me the big question right now isn’t ‘will we stay at this current interest rate’, but once we move (in maybe up to a year at a guess), assuming it’s upwards, how quickly will rates rise again?

Let’s suppose inflation’s bubbling at the extreme and we see a mirror image of the 5% cut in just a few months. That’ll leave those sitting on SVR or tracker rate mortgages back to where they were eight months ago.

The mortgage elastic only stretches one way.

There’s a funny thing about price rises after price cuts… the feel-bad factor of the rise is not proportionate to the cut’s feel-good factor. In other words, the rise is much worse than that cut was good.

Suppose someone was paying £1,000 a month on a mortgage and it dropped rapidly to £500, then returned six months later to £1,000. Most people’s psychology will mean that paying £1,000 again feels much more expensive than the first time. This is partly due to what I call “forgotten gold”.

Usually this happens the other way, when people get a pay rise. You were earning £25,000 a year, then it’s £30,000 but very quickly you adapt and stop enjoying the new salary rise as spending increases to take account of the new income and expectations. It’s the reason why if you want to put part of your new salary aside, do it by standing order the very FIRST month the payrise starts… after even a couple of months you’ll find yourself saving less as you don’t want to forgo the benefit.

Much of this is true with the mortgage scenario, tracker holders have adapted to having the extra cash. Those who are simply saving it in a high interest account won’t be hit too hard, but those who are spending it each month will feel the pain.

And that’s the problem, people are bad at cutting back, and over the last ten years far too many have learned to rely on debt to fill the gap (see stop spending guide). Not what you need when rates are jumping.

Comment and Discuss

Talking money at the moment is a difficult balance. I’m often asked questions when interviewed starting “as we’re all struggling at the moment…”. Yet of course that simply isn’t true, in fact, in many ways we’ve never had a more polarised society.

The recession’s bite is primarily about income & assets, not expenditure…

Most of the problems people are currently facing are due to income issues – such as job loss or pay cuts – rather than cost issues. Of course for some – often older people on the state pension – specific inflation and cost issues are still high, but that’s a constant rather than a recession based change.

That means mainstream society is divided into two camps:

• It’s good for…

  For those in stable jobs, i.e. in the public sector or anywhere there hasn’t been pay cuts, with variable rate mortgages, this is probably as good a time financially as it gets. We’ve got prices dropping, companies fighting for business and a true buyers’ market in many things.

• It’s bad for…

  Anyone who’s lost their job or is working for or running a struggling company, and of course with unemployment now at 2.1 million that has grown rapidly and radically.

  It’s also bad for those relying on their assets, such as property and shares, as (on paper only for many) they’ve plummeted in value leaving people feeling much less wealthy.

I think it’s important to keep this balance in mind. There are certainly more people struggling and with serious problems than before, yet that doesn’t mean everyone is.

Though of course it’s sexier for the media to cover extremes. Throughout my career I’ve fought the fact that whenever any TV programme wants to cover “debt” they always go for a severe case. Actually that’s both not representative of most people with debts, and more importantly requires a completely different approach to deal with (see the debt help guide for an explanation why), thus as a case study it doesn’t give most viewers decent take home information.

Trying to cater to this current financial schism is interesting; here on the site we’re trying to keep a mix of items, so we may have the redundancy guide next to an article on using cashback cards, as catering for both is important. Therefore, when I (rarely) spot one of the team using such absolute phrasing I scratch a red line through it.

Comment and Discuss

The Student Loans Company’s rates change in September based on March’s RPI; if next month’s figure drops from the current 0% and goes negative, those who started uni pre-1998 – currently paying 3.8% – will see their loan SHRINK.

Yet the govt. hasn’t confirmed if the same’ll happen for post-1998 student loans: these rely on both inflation and are also linked to interest rates, and therefore have already dropped to 1.5% (full explanation: student loan repaying guide).

I wonder if this delay is a wait and see what the RPI for March is before it decides. Perhaps if in March RPI is -0.1% or 0.2% it will confirm that post 1998 university starters (who form the majority) will also see their loans shrink – that’s great PR to start with. Yet if RPI is -3.0% the cost will be too high and it will change the system, or argue it should match interest rates.

Comment and Discuss

I’ve just travelled back from the FSA’s Canary Wharf headquarters, where I was invited to watch and speak at a meeting of its consumer panel, by acting Chairman Adam Philips. The panel’s charged with working to ensure FSA regulations work in the interest of UK consumers. Not an easy task, as of course consumer views span a broad range.

It’s been something we’ve been trying to arrange for a long time, and sadly has had to be cancelled by both sides as things have cropped up; so it’s great I finally made it, and the discussions were very productive.

In the past some people have suggested I apply to be on the panel (if they’d have me). There are many people I’ve worked with and have a great deal of respect for on it, such as Nick Lord, and a fellow journalist, Scam fighter Tony Hethrington, (see the full panel membership) but my view (as I echoed today) is that MSE is a campaigning website on things like Bank Charges and PPI. Thus, sometimes I disagree with the panel, for example on the hold on bank charges, and I think it’s better to stay free to keep MSE views, but also work in concert when possible.

A whole host of issues came up today. As well as the obvious big campaigns, here’s a few others, big and small…

• Claims Handlers: We discussed the growth of claims handlers for reclaiming. While they’ve been around a while, the worrying trend is those companies charging up front for reclaims which are very unlikely.
• Savings Rates: The fact even web-based savings accounts don’t list your current rate of interest – you need to search for it amongst a host of other rates. Surely in the modern technological age this can be done. Is it not done deliberately to add confusion? This is something I want to do some work on, but I’m still mulling the best way to approach it.
• Irish Protection Issue: As I’ve mentioned in past blogs, there’s a problem with the Irish protection system. Many people got accounts out being told, as the prevailing wisdom was, that the first £50,000 of any savings was protected by the UK FSCS. Now it turns out that this is wrong and all of it is protected by the Irish system. In the unlikely event there were to be a problem this would be a horrid issue. Remember we’re talking Post Office savings here amongst others, as it’s owned by an Irish bank.
• Insurer Stability: Another ‘future proofing’ issue, is one of the stability of the big insurers. We’ve seen problems with the banks, but not a big UK insurer as yet. This is another issue for the Financial Services Compensation Scheme and its important to see exactly how it would and could be handled. See Safe Savings for a further explanation.
• Setting Off. This is something I’m writing a note on for the weekly email next week. It’s where a bank is allowed to take money out of your account to pay off other debts with it, and sadly activating that clause is becoming increasingly common. In many ways this is a great example of how I hope sites like MSE can work symbiotically with the consumer panel. My suggestion will be the practical one for people who are struggling to separate their bank account from their debts: moving to a new bank. Then it’s hoped that on the other side the panel will be able to lobby the FSA, to tell it this is something that must be strongly looked at under the Treating Customers Fairly rules.
• Pensioner Poverty. With savings interest dropping rapidly there’s a big worry for those – usually older members of society – who rely on it for their income. Add this to the country’s aging demographic and possibly less tax revenue to pay out of the social security pot for pensions, and there’s a big potential problem. One of the worries is the reticence of some savers to use their capital, even if we get to a deflationary environment (see an explanation at the top of the weekly email of 18 Feb 2009), so perhaps an education process is needed.

I also offered the panel space in the forums, without any MSE interference (barring usual forum rules), so it can consult with consumers on specific issues – something I think and hope it’ll take up.

Overall it was a really useful meeting. I hope they feel the same.

Comment and Discuss

Last Thursday was another huge day for bank charges reclaiming. The Court of Appeal rejected the banks’ attempt to overturn last April’s High Court ruling that bank charges are subject to fairness laws. (See Bank Charges Court of Appeal, Bank Charges News, and Bank Charges Reclaiming for more info).

Yet nothing works in isolation: alongside those chomping at the bit to get their unfairly taken cash back, there are people who worry about the bigger impact. I thought I’d jot down my thoughts, though of course having campaigned on this for three years, do remember I’m a touch biased.

Is this the end of ‘free banking’?

Last week straight after the announcement, Moneysupermarket and a couple of others put out press releases saying something like ‘the end of free banking’. Now this is nothing new, I remember drawn out arguments on this when reclaiming was in full flow; you can trace many of them back in the forums and my past blogs (like these two blogs from 2007 & 2008: “don’t blame reclaimers” and “it’s not the end of free banking”.)

Yet I’ve never taken this stance. While of course I understand the ‘it’s not right that people who have abused their bank accounts should get this money back and those who have behaved rightly will need to pay for it’ argument, for me it’s the banks who’ve abused accounts through a systemic, unlawful abuse of customers who go beyond their limits.

Here’s the reasons why I still don’t think bank charges reclaiming will kill ‘free banking’.

• We don’t have free banking. We’ve ‘fees-free’ banking for in-credit customers; ask anyone with an overdraft how ‘free’ it is. Even those in credit are paid pitiful or no interest on money the bank then gets to lend out for others in the form of credit cards or other debts at huge rates.
• It’s mismanagement, not bank charges that’ve really hurt. Even if £3bn is paid out, repaying every bank charge for years, this is a fraction of the taxpayer’s bill for bailing out banks. If anything sees off ‘free banking’, it’ll be SHAMBOLIC management decisions that cost hundreds of billions of pounds and caused record losses. In context, bank charges reclaiming is small change.
• The market is too competitive. For those who’ve managed their accounts within their limits (always the best way) the market place is generally still amazingly competitive. You can currently get £100 for signing up to a new account, plus free travel insurance and an interest free overdraft, or alternatively you can be paid £5 a month just for being in credit (see best bank accounts for more info on all these). Why would a bank risk haemorrhaging customers by charging a fee?
• Banks ALWAYS add charges. Banks are always adding stealth charges to everything; both before, since and I’m sure, after bank charges. Whether it’s additional loads for foreign exchange spending, paying to change your address, or even if they launch charges for going to the loo in branches – their job is to make money from us. Bank charges reclaiming may be a big cost, but they’d try just as hard to add whatever charges they can on, with or without it.
• IT HASN’T HAPPENED! Of course I could add “it hasn’t happened yet”, but in truth bank charges reclaiming has been around three years now. Over £1 billion is thought to have been paid out, and the banks have at the same time (though not caused by it) collapsed, yet STILL we haven’t seen the end of ‘free banking’.

Is a payout good or bad for the economy?

Another more recent argument against bank charges reclaiming is “it’s taxpayers money”. Well, from my perspective that’s even more reason the banks need to be obeying the law rather than a justification for them breaking it. Yet also remember our money is currently sitting in the bank’s safes, and there’s a struggle to get them to unlock any of it and lubricate the economy.

Now imagine billions taken out of banks’ safes and into the hands of rightful owners for them to spend, save or pay off debts; what a stimulus to the economy in times of need. Exactly what everyone’s been calling out for.

I only wish they’d hurry up.

Comment and Discuss