Are negative rates the next big idea?

27th February 2013

Yesterday Paul Tucker (deputy governor of the Bank of England) told the Treasury Select Committee that negative interest rates should be considered as a way to boost the economy.

How much more pain will savers have to endure? They have already suffered hugely following the introduction of the Funding for Lending Scheme. So far in 2013, savings providers have announced rate cuts to over 270 accounts affecting existing customers, even though the Bank of England base rate has remained unchanged for four years.

A base rate cut, especially one that takes it into the negative, will clearly see more providers cutting the rates on more accounts, leaving savers unable to earn anywhere close to inflation. For those who are dependent on their savings to supplement their income, a move like this could be disastrous and leave them unable to recover, even if rates rise again in the future, as they could have to eat into their capital to make ends meet. It could also tempt savers to take greater investment risks in the hope of securing higher income, which could have damaging long term consequences.

There must be another way – enough is enough.

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