The savers predicament

March 27th, 2011

The recent jumps in inflation coupled with record low interest rates have been a boon for those either looking for or repaying credit. However, savers are facing an increasingly tricky search to find accounts that adequately protect their funds from the inflation onslaught, let alone bring them a decent return.

According to the financial information website Moneyfacts, basic rate taxpayers can choose from just eight savings accounts that negate the effects of inflation. No such option exists for higher rate taxpayers, who would require an account paying 7.3%.

The Retail Prices Index (RPI) measure of inflation was at its highest level for 20 years in February. The measure, which includes mortgage interest payments, rose from 5.1% in January to 5.5%.

Driven by the rising cost of food, fuel and clothing, the Consumer Prices Index (CPI) annual rate of inflation rose to 4.4%, up from 4%.

The latest rise in inflation meant a basic rate taxpayer needed to find a savings account paying 5.5% a year in order to stop their savings pot effectively eroding away, of which only eight are currently available.

The rising rate of inflation comes at the same time as the Bank rate continues at a record low of 0.5%. The continual rise in inflation compounds the misery of pensioners relying on savings to supplement their income.

People trying to save a deposit for a first home will see inflation eating into their hard-earned savings faster than it grows, unless they seek out the few accounts that can keep pace with inflation.

Over the last six months, the number of savings accounts that beat inflation for basic rate taxpayers has dropped successively from 118 to only eight today – all of which are fixed-rate Individual Savings Accounts (Isas).

Some providers have launched various “inflation-rate bond” products into the market in recent times. These track the inflation rate and pay a rate of interest at the end of the year. Investor’s money is tied into these accounts, and so the interest paid can fall if the inflation rate drops in subsequent months.

High inflation and low interest rates do ease the pressure on those with high debts, as the amount that is owed is eaten away in the same way as a nest egg of savings is affected by inflation.

For savers who accept rates will not beat inflation, there is some cheer in the level of competition in the market. The margin between the Bank rate and the interest paid by savings accounts is actually very high at present.

We are currently seeing healthy competition in the savings market, with banks and building societies fighting for funds. If this continues as interest rates begin to rise again and inflation falls, savers will be ideally placed to start making their funds work for them once again.

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UK Consumer confidence takes a battering

March 19th, 2011

Research by the Nationwide shows that consumer confidence fell to a record low in February, sinking deeper than even during the recent recession. The report shows that fears about job security, inflation and the choppy economic recovery were the main factors responsible.

The Nationwide’s Consumer Confidence Index dropped 10 points during the month to stand at 38. This is the lowest level since the survey of 1,000 people was launched in May 2004. A year ago the figure stood at 82.

Some 42% of those questioned thought the economy would deteriorate further, rather than improve, in six months’ time. While 63% thought there would be fewer jobs available. The economic outlook and job market uncertainty are making consumers reluctant to spend their money.

One in five people thought it was a good time to buy household goods, down 14% on the previous month. More than half of those asked believed it was a bad time to make a major purchase, such as a car or house.

The figures can hardly be seen as surprising as there was little positive news in February to give consumers a much needed boost. Furthermore, news that the economy shrank in the final quarter of 2010 would have done nothing to lift already dampened spirits. Consumers are just now coming to understand that the economy faces a slow grind.

There is a glimmer of hope for consumers however, as the budget later this month is expected to be ‘unashamedly pro-growth’. If the financial narrative changes over the course of the year from cuts to growth, as the Government hopes, then consumer confidence will begin to rise with the economy itself.

It is an irony of the ‘drag’ effect of economic sentiment that consumers have reached their most pessimistic long after the recession has ended and just as analysts believe there may be a light at the end of the tunnel.

Nascent growth and the glimmer of recovery will be balanced by near constant media coverage of spending cuts throughout this year. Hence the continued discourse that 2011 will be ‘choppy’.

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Winning the fight against credit card fraud

March 13th, 2011

The UK Cards Association has recently revealed that fraud losses on UK credit and debit cards fell to the lowest level for a decade in 2010 as awareness of the issue increased.
The amount lost still reached £365.4m, but this was 17% lower than the previous year.

The biggest drop was in the amount lost through cloned or skimmed cards, which fell by 41%. But the amount lost through cards being intercepted in the mail was up 22%.

Total losses hit a peak at £610m in 2008, but have now fallen for two successive years.
The fall in the total amount lost to UK cardholders was the result of more fraud detection tools used by banks and shops, as well as the continued increase in chip-and-pin use, the association said.

Awareness from consumers and retailers on how to protect themselves from fraudsters also increased. Such tactics as shielding the entry of a Pin number at a cash machine, regularly updating a computer’s anti-virus software and wariness of unsolicited e-mails and telephone calls all helped consumers defend themselves against fraud.

Within the results, there was a 15% drop in the amount lost when fraudsters used card details to buy items on the telephone, internet or by mail order. Identity theft losses were relatively unchanged and, despite a 21% rise in the number of phishing attacks, the money lost to online banking fraud was down 22%.

Detective Chief Inspector Paul Barnard is head of the Dedicated Cheque and Plastic Crime Unit, which is a specialist police unit sponsored by the industry. He said, “While another drop in fraud is good news, the fraudsters have not shut up shop which is why there can be no room for complacency on the part of the banking industry, retailers, law enforcement or indeed customers themselves.”

The UK Cards Association said: “The cards industry is greatly encouraged by the major decrease in card fraud losses for a second successive year, but we will not be easing off our efforts as a result. It is essential to us that customers feel safe and secure when they use their cards and we will continue to invest in a wide range of fraud prevention initiatives to keep it this way.”

This is a real piece of good news that shows consumers are taking the upper hand against the spineless crooks that commit card fraud. However, the news is not a sign that anyone can relax their vigilance.

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