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Have Your Say: Interest rate cut

Interest rate graph

The Bank of England has cut its base rate by a huge 1.5%.

Many mortgage lenders have slashed their standard variable rate (SVR).

It is good news for many homeowners.

But what about those who rely on their savings to make ends meet, as mortgage reductions mean less good savings rates?

Should lenders pass on the full rate cut - even if it means savers will get less?

How should banks and building societies balance this dilemma and make a profit?

Let us know what you think.

We asked for your comments, a selection of which are below. The debate is now closed.


Let the borrowers have the full benefit of the reduction in interest rates by all means, but bearing in mind the numbers of investors now required to provide the average mortgage loan, perhaps the tax cuts that are being considered by the chancellor should be directed at the savers. How about a removal of income tax on interest for a two year period? Or cutting the rate in half permanently? This would maintain the incomes of many people on fixed incomes and enable them to continue to spend which it is alleged will cure the recession.
Bert Molsom, Market Drayton, Shropshire

After two successive monthly interest rate cuts totalling 2% our wonderful Spanish owned mortgage company, Alliance & Leicester, wrote to us informing us that they were reducing our SVR mortgage rate by... wait for it... 0.25%! Let joy be unconfined. Perhaps it's time for people to send these people a message and vote with our feet.
Dave Petherbridge, Leeds

Depositors in bank and building society savings accounts are providing a service to these institutions by allowing them to make use of the money deposited with them. In return for this, it is not unreasonable to expect a decent amount in interest. I personally do not intend to allow my money to be used in this way if I receive next to nothing for my loans to the bank. My funds will be withdrawn and put somewhere more profitable.
Caroline Marr, Oswestry

The only logical course of action is to squander one's money
Robin White, Basingstoke
Given the current inflation rate savers will now struggle to get a real return that maintains the value of their money. Why are we expected to pay tax on returns below the rate of inflation? Many pensioners will be paying tax on non existent gains. If the value of savings is to be eroded like this the only logical course of action is to squander one's money and then wait for the state to bail one out.
Robin White, Basingstoke

I am sympathetic to savers whose interest payments will be reducing, but those relying on short term interest rates for medium or slightly longer term income did not match their investments with their objectives. Safer strategies would have been to buy into a fixed interest unit trust (perhaps via a stocks and shares ISA) or to make direct purchases of gilts. These approaches would have avoided the sudden drop in interest income.
Chris Grey, Guildford

Bring back Maggie?
K Morrow, Kings Lynn
This cut will cause havoc for all, because most retired people that have worked hard to create a nest-egg for their retirement will stop spending, they will try to keep their capital, they are taxed on their interest but the government will now collect less. Where is the money going to come from? The government messed up the insurance companies with the 5bn a year robbery from our savings and pensions! They have allowed the same with the Banks and Building societies as they were not policed properly! Whatever happened to the Balance of payment? What is the true unemployment figure with Incapacity benefit claimants added on? There are not many real jobs anymore in the UK, no heavy industry. So it's a different kettle of fish from all the other recessions we have had in the past. Bring back Maggie?
K Morrow, Kings Lynn

Interest rates should not be cut. Today's problems were caused by cheap credit. The answer to our problems is not more cheap credit and passing the problem to our children, but a return to monetary discipline; Gordon Brown once called it prudence but he has long since forgotten her in favour of political expedience.
Jeff Turner, Sidmouth

In the main it us wrinklies and small savers who have been played for suckers

Peter Scott, Suffolk

Like so many others of my generation a large part of an ethical lifestyle was to buy only what we could realistically afford. Saving for major purchases, or hard times was also part of that lifestyle and for the whole of our working lives that is exactly what we did as a family. Indeed, saving was considered to be a patriotic thing to do as it benefitted the nation in all sorts of ways. So we saved in Post Office accounts, then banks and building societies and over the years saw our savings devalued by inflation, so after financial advice, we made cautious investments. What idiots we were - and probably still are. Why didn't we borrow up to the limit and enjoy flash cars and holidays? why didn't we speculate on house price inflation rather than just buying a home? Why did we make sure we could financially support our own children? We don't even have the satisfaction of knowing our money was lost in a good cause. The sharp dealers took it, debtors are still taking it, and now what savings we have left will be further devalued to furnish more debt. House prices will go up in the long run, they always do, and the commission earners will be back in business long after we cease to be grateful for our fuel allowance. So in the main it us wrinklies and small savers who have been played for suckers. I am so angry, but even angrier that no politician has publicly acknowledged this. By default their message is exactly the same as I relayed to my son. "Whatever you do son, enjoy life to the full. Try not to be selfish, but do not save your money or you will deeply regret it."
Peter Scott, Suffolk

The current financial crisis has been brought about by the abuse of low interest rates and easy availability of funds. So the "solution" chosen - of reducing rates and making massive funding available - seems to be the economic equivalent of shoring up and perpetuating a gigantic pyramid selling scheme. When the "scheme" finally fails we'll all be in trouble.
Richard Heighton, UK

I am now having to bail out the brain-dead

Elizabeth Balsom, London

I do wish people could bring themselves to acknowledge the plight of people like myself who depend on the income from savings accumulated over a frugal lifetime. My retirement income was never going to be massive, but it should have been sufficient. Recognising that my occupational pension income would be meagre, I have tried to compensate by saving and, smug though this may sound, have never spent beyond my means. Now I am stuffed, thanks to the uncontrolled excesses of reckless bankers, incompetent regulators and a government which trashed such pension funds as I do have and sat on its hands while Equitable Life, through which I saved, went bust. I do wish Brown or Darling would at least utter a sentence of recognition of the people who depend on their savings to pay the bills, but I guess we're not sexy enough for that. This is not a one-dimensional problem, but I am now having to bail out the brain-dead who thought it acceptable to take out 125% mortgages, re-mortgage, spend spend spend on cheap Chinese imports etc. And just how does it help UK plc to slash rates so the improvident can embark on yet another round of (imported) retail therapy?
Elizabeth Balsom, London

If the bank of England is expecting the last and latest interest rates to have speedy results by banks passing it on I am sorry to let them know this is just not going to happen. I think its worth looking at putting a shot across the bows of the banks to see when they are actually passing it on. January is way too late if the aim was to increase consumer spending for the Christmas period and may be way too late for many mortgage payers currently facing the possibility of not being able to pay all of their payments.
Gary Peach,Woking

What an appalling shame
Julie, Hastings
I am a fulltime carer for my severely disabled child and we have managed to live without Social Security payments for many years by being careful with money and saving in the good times so that the interest on these savings would help us in the bad times. The current interest rate cuts will devastate our standard of living and it is likely now that we will need state aid. What an appalling shame that the government is prepared to support naked greed in the form of homeowners and landlords making fast and easy money on the backs of people like us who just try to get by without leaning on others.
Julie, Hastings

I'm not saying we should have followed the French model exactly, but there it is illegal to offer any loan, mortgage or personal, that will take your payments over one third of your salary. Maybe that's why we are more prone to boom and bust.

If savings rates fall markedly, expect a rush for premium bonds. The government could help by applying the 20% "savings tax" only to the element of savings interest which is above the rate of inflation.
Alan Russell, Luton

Cash is King? Maybe one day

Christine C, London

Culture based on the never never. I thought that Rules were Rules - you didn't borrow more than you could afford to repay. If you took a huge risk, you might do very well indeed, as many did. If you were unlucky enough to pile in just as the bubble burst, then you took the consequences. Today, even to suggest this seems to be not politically correct. We must all be happy to subsidise those who lost out, to help them keep their new homes. What has happened to make owning a home more like a commercial business? People should be heavily taxed for ownership of more than one property, rather than encouraged to buy a whole fleet of them on dodgy loans. Now those loans have come home to roost. Savers who resisted borrowing are now expected to subsidise borrowers via interest rate cuts. I'm going to spend my savings making my home as pleasant as possible, rather than leave them in the bank to earn insulting rates, Cash is King? Maybe one day.
Christine C, London

Of all the discussion recently of raising or lowering interest rates, little mention was made of supply and demand effects, for example, if they set them too low many people could draw their money out and produce a shortage of available money to lend, so businesses wanting lower rates may cause no money to be available at all for them to lend (available money would have to be rationed some other way). Particularly if savers rates (after tax) do not even keep up with inflation; it acts as a very powerful disincentive to saving if the real money value of what you save is going to be eroded over time.
L Austin, London

Clearly what I should do is spend everything
Cliff P
I've worked hard for a long time. I've saved and acquired moderate savings. I have avoided borrowing. I've paid off my mortgage. I am rewarded for this by now being forced to watch those savings disappearing down the plug-hole otherwise known as taxation plus inflation. The government which allowed unsustainable lending to take place year after year is now intent on using the taxation from my savings to fund its chosen solution - more lending and borrowing. Clearly what I should do is spend everything, then borrow to fund more spending, go bust then wait for the state (i.e. the suckers who save) to bail me out when the eventual fall arrives. I don't know why I didn't think of it before.
Cliff P,Colindale

At last someone is thinking about the effect on savers. Well done to Money Box and Adrian Coles. We put our money in UK banks and building societies, not overseas institutions, which in turn supported the UK economy. We've been kicked in the teeth so many times by this government - lower interest rates, no dividends on bank shares which were bought or acquired by TSB and the building societies going to the stock market and the value of those shares have fallen. And we will suffer even more as the building societies where are low interest savings are held forced to contribute to the Financial Services Compensation Scheme to bail out the ones that chased the best interest rates around the globe.
Julie Clist,Farnborough

I understand that most mortgage holders do not have variable rate mortgages, so a reduction in mortgage rates is not in the immediate interests of many. Increasing redundancies has presumably led to many (as myself) with a small sum to invest and to live on while job hunting or retraining. This group of savers has not been recognised (I've heard only two references to those whose standard of living relies on savings, referring to pensioners). Reducing interest rates is not in these savers' interest either, double penalised if locked into a fixed rate mortgage.
Carly Stevens, Norwich

Okay to encourage people to borrow borrow and spend for Christmas, but what about those of us with savings? I thought the current crisis was due in part to easy money availability so what message does this send out? Definitely not to save. Where to move your savings is the next question. Maybe it's Gordon's way of encouraging us to move our savings into the government's coffers of National Savings and Investments as he sure needs the money at the rate he has been spending it on the banks.
A Tate,Petworth

Pensioners at the bottom of the pile yet again
Linda Ryle, Romford
Your correspondents have already mentioned the effect of the rate cut on savers and in particular pensioners, who have been careful with their money in order to supplement their pensions and the rate cut will lead to a very real fall in the standards of living for many pensioners. In order to maintain the real value of savings the rate needs to exceed RPI and savers need to only access the balance. We now have a potential situation where there will be a negative real savings interest rate before access to the interest which will only compound the loss of real value. Pensioners at the bottom of the pile yet again! I shall be writing to the "Chancellor" Gordon Brown, who tells me that he wants to help everyone through these very difficult times, to ask him how he proposes to deal with this very real problem, other than hoping that the "grey population" will not realise what is really happening.
Linda Ryle, Romford

British banks at 3% are just not viable now for us that have had the foresight to save some of our money. It does not even cover the rate of inflation. There are thousands of savers in a similar position and could result in a massive withdrawal of much needed funds from the British banks.
Raymond Whyman,London

We have also supported the banks financially already by buying the rights issue
You have not mentioned the fact that many pensioners like me will have little or no income from bank dividends for the next few years. We have also supported the banks financially already by buying the rights issue. Now we are hit by a decrease in the interest rate on savings. RBS shares are scarcely worth the paper they are written on.

It is time to think of savers. There should be a large extraordinary e.g. 10,000 - 15,000 one off increase for Cash ISAs.
Jane H, Poole

The big banks get round a table for a nice cosy chat every morning and agree the rate which will determine how much they will charge us for money. In any other industry this would be seen as a cartel, and be illegal. If it is, some of those fat bankers should go to jail!
Curly Charlesworth, Crewe

As a saver I have been hit with all the problems
Mrs Gee, Leek
It has always staggered me that the government allowed "buy-to-rent" mortgages, with borrowers allowed to take out more than most homeowners - it started the rise in property prices and started all this problem with sub-prime. These people can walk away from their investments, it's not like walking away from your home. And so the bricks fall down - and now, as a saver I have been hit with all the problems, not least a drop in my income I can't afford - all because of peoples' greed being formalised by the government. Thanks.
Mrs Gee, Leek

My mother (90) lives in a residential home, funded by her local authority; in working out her contribution the LA makes an allowance for the amount of interest earned on her capital. This was an unrealistic figure last year, now with the collapse of interest rates her capital will inevitably be eroded even more quickly.
Pauline Cooper, Yelverton, Devon

The comments we publish are not necessarily the views of the BBC but will reflect the balance of views we have received. It is helpful if contributors state if they work for any organisation relevant to an issue discussed. Readers should form their own views on whether messages published represent undeclared interests, or views prompted by a common source.

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External internet links
07 Nov 08 |  Moneybox
UK interest rates slashed to 3%
06 Nov 08 |  Business
Full Bank of England statement
06 Nov 08 |  Business
Pass on rate cuts, MPs tell banks
04 Nov 08 |  UK Politics
Lenders heed calls for rate cuts
07 Nov 08 |  Business

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