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We've chosen an excellent time to buy ourselves a house and while we wait for a mortgasge to come through I've been wondering what all the extra money we'll be paying goes to. Does the bank eat it all up or does it somehow end up helping the economy in some way? If we were paying a few hundred quid a month extra in tax I'd know at least some of it would go to hospitals, roads, etc but I feel like this money just goes to some dude who already has a yacht. I'm eager to be proven wrong on this though!
So can anyone explain this to a finance dunce please?
It pays for Liz Truss' Instagram
In reality I would also like to know.
Interesting question……be good to get some insight into this.
I presumed it was just circular. The banks make more from their mortgages while also paying more interest on their government debt (I’m sure there is a better word for it than this).
Does the bank eat it all up or does it somehow end up helping the economy in some way?
Banks generally make more money when interest rates are higher, so some will be lining their pockets. They also borrow money to lend to people, so the rate at which they borrow that will be higher. They also pay higher rates on savings accounts etc, so that will cost them more..
So it looks like all the money is going up the way into financial entities and those with big savings.
But of course
Me. I have savings and the bank pays me interest. Same bank (potentially) which has lent you some of my money to buy a house.
I promise I will donate a little extra to charity next year if it makes you happier about the increase?
Dunno. But I know who gets the increase on savings rates. Me 🙂
Could also be helping other investments like your pension
As usual, Tim Harford comes to the rescue:
https://www.bbc.co.uk/sounds/play/m001dx5l?partner=uk.co.bbc&origin=share-mobile
I think I need to listen again to understand it better but I think it answers my question.
I promise I will donate a little extra to charity next year if it makes you happier about the increase?
that is a fine and noble promise. Please do.
Not quite as simple as it all going as extra profit for the mortgage lender though. They themselves will have often borrowed the money from another financial entity in the first place that will now need paying back. I believe the profit margins on mortgages will still be pretty low.
@daveylad:
Dunno. But I know who gets the increase on savings rates. Me 🙂
But inflation is running at 10%. If you think savings outpace inflation then you're either deluded or don't understand how money works.
Blurb for the above - worth a watch if you give a monkeys about, well, your own life and what's happened to this country recently:
In 2011, while working as a City trader, Gary Stevenson joined the ultra rich with a single bonus cheque. Not long after he was named one of Citibank’s highest performing traders worldwide. Stevenson made millions for his employer by betting on one thing: that the British and American economies would fail to recover from the global financial crisis, that inequality would only get worse and living standards would stagnate. That made him rich, but miserable. Which is why Gary would later leave his job to campaign on inequality.
In this interview he discusses his personal story - from studying at the LSE to the working culture of one of the world’s biggest banks - to what the economics of the 2020s will look like, and how the plan is to destroy the middle class.
Well, savers will get it, essentially.
You get 4-5% on savings accounts, so live in a tent and put your money into an ISA instead.
Sorted.
But inflation is running at 10%. If you think savings outpace inflation then you’re either deluded or don’t understand how money works.
No one said they were outpacing inflation - just that savers were benefiting.
In answer to the OP, you mean 'ethical banking' (if that's possible). So, you can borrow from a community bank, Shariah bank or the CO-OP who all follow some kind of principled lending.
You're financing yachts with Barclays, HSBC etc.
Some details here:
But inflation is running at 10%.
Only until March or so. And - not everyone is equally exposed to inflation.
Living costs have gone up by a fixed amount, but interest is a percentage of savings. If you have £1m in the bank you're now getting whatever it is, £50k a year in interest which will more than offset the extra £200/mo in electricity.
Ultimately, money goes to money. That's what the system is designed to do.
The more you have, the more you'll get.
Not enough yachts!
Rich people get the money. How can you not know that?
Only until March or so. And – not everyone is equally exposed to inflation.
Living costs have gone up by a fixed amount, but interest is a percentage of savings. If you have £1m in the bank you’re now getting whatever it is, £50k a year in interest which will more than offset the extra £200/mo in electricity.
Or put it another way if you have a million then a year later you’ll have £950,000. If you spend nothing
Now the truth is some where between the 2. But if you have savings currently you’d be better off with no interest and no inflation. You could spend £50,000 and still have £950,000
I have every sympathy with the people getting onto the ladder at the moment. But currently I don’t think the numbers benefit any one group. Accept maybe the bankers in the middle
Remember most savings are pensions which are quite important to the state and individuals
Blurb for the above – worth a watch if you give a monkeys about, well, your own life and what’s happened to this country recently:
I'm glad somebody on here understands... For what it's worth, Gary Stevenson is very much like a British Michael Burry, but 15yrs younger. For anyone who hasn't watched the Big Short, or doesn't understand what caused the 2008 Global Financial Crisis, basically these guys bet against the established wisdom that the economy was always going to recover fairly quickly, because it always had before... But they looked deeper at the reasons it was failing, and decided to bet against the system and made a lot of money (and had severe crisis of conscience doing so) betting against the system...
Our government should be looking to put people like him in positions of severe influence within the financial system. Of course they are doing the exact opposite, trying to silence or marginalise them, because they wish to continue to perpetuate the rich poor divide...
Living costs have gone up by a fixed amount, but interest is a percentage of savings. If you have £1m in the bank you’re now getting whatever it is, £50k a year in interest which will more than offset the extra £200/mo in electricity.
To Joe Bloggs on the street, the person with £1m in the bank is incredibly rich... In real terms, they're far closer to the breadline than to the actual real rich (the Sunaks of this world) and they aren't the real problem... The person with £1m in the bank getting 5% interest on their savings is getting 5% poorer annually at the moment giving inflation is now above 10%. The Super Rich just continue to buy assets that nobody else can afford, assets that continue to grow in value far faster than inflation which none of the rest of us can afford to do so, thus continuing to perpetuate the rich/poor divide!
There is only one solution... TAX. THE. F***ING. RICH!!!
Ultimately, money goes to money. That’s what the system is designed to do.
That's what the current political system is designed to do, yes... Not the system of money itself. The only way to change it is to totally destroy the political system as we know it and to rebuild it from scratch! We could all vote Labour at the next general election, all that will do is slow down the rich/poor divide somewhat, it certainly won't stop it. We need to move away from a belief in money as the structure of wealth, towards the understanding that money is simply just a mechanism for trade and that real wealth has nothing to do with the amount of money you have in the bank!
I have every sympathy with the people getting onto the ladder at the moment. But currently I don’t think the numbers benefit any one group. Accept maybe the bankers in the middle
Eh...? The numbers absolutely benefit one group, and it isn't anyone in the middle... It benefits the super rich in such a way that it's actually pretty criminal those who are designing it to do so! If you haven't, watch the YouTube video linked to further above... It's 90min long sure, but it'll open your eyes to what is going on. Anyone who earns a salary, traders on £100k+ bonuses included, aren't the real benefactors here... It is those with 10's or 100's of £m's of assets that are the real benefactors. The UK put £600Bn into the UK economy during COVID in the name of furlough etc... There's approximately 50 million people of voting age in the UK (another 17 million under the voting age approx)... Where's your £12k that the government put in your pocket during COVID? I can tell you where mine is... In a super rich man's property portfolio! It's the same as the recently proposed and then thankfully scrapped 1% cut on basic rate tax was going to make the average person about £20 a month better off... It was going to make the average super rich person many £thousands per month better off FFS!
Don't for one second think that because your property has gone up 30% in value since you bought it and that you fixed your mortgage at 1.6% for 5 years 18 months ago and aren't going to feel the pinch like some people (this describes my situation exactly, I could see what was going on and wasn't taking chances) that you are suddenly well off or even rich... We are still going to feel a huge pinch too, just not quite so badly as those who are remortgaging right now or buying a more expensive house for whatever reason (I was looking, but now can't afford it purely based on interest rate rises!). You are not part of the establishment and should remember that and behave accordingly when voting or considering your position on the incumbent government continually conspiring to keep us in our place!
The only way to change it is to totally destroy the political system as we know it and to rebuild it from scratch!
Yeah good luck with that.
My view - the first step on the road towards reform, that we can actually take, is electoral reform. That could allow us to vote the way we actually want to vote without risk of 'letting the other people in'. That, in my view, is likely to radically alter the political landscape and would probably result in much much better government.
I see a pattern in you not actually liking real change here @molgrips 🙂
... anyway this:
Only until March or so. And – not everyone is equally exposed to inflation.
Living costs have gone up by a fixed amount, but interest is a percentage of savings. If you have £1m in the bank you’re now getting whatever it is, £50k a year in interest which will more than offset the extra £200/mo in electricity.
Is isn't correct. Inflation erodes the spending power of your money. So a millionaire earning 5% interest will indeed have $50k a year of interest (if they don't spend anything) but their million will be be worth $100,000 less in real terms because of inflation.
It's not just living costs. It's pretty much everything. But rich people would never ever be as stupid as to stick $1m in a flipping savings account "earning interest" - because that's a dumb-man's fast way to zerosville.
Yeah good luck with that.
I didn't say it was likely to happen any time soon... But if we all continue to be as apathetic as you, we'll continue to get shafted in the way we are right now because the establishment believes that they can continue to get away with it... I'm not condoning violence for a moment, but when you consider what goes on in other countries (****stan for instance today) when the voters don't get what they want, they take the law into their own hands at times, with the use of weapons and violence if necessary! We are probably the worlds most politically apathetic nation in the UK right now, and it is our absolute undoing. It wasn't always this way of course, and we need to start being able to demonstrate such resolve again in order to begin to rebuild a better society for our future.
Electoral reform is arguably a step in the right direction. Of course it in itself has its own flaws, it allows for fringe beliefs to be given far too much credence and even become representational over time... Look what happened to Germany in the 1930's for instance, this is how the Nazi's came to power and is how other far right nationalist parties in particular seek to gain credence elsewhere currently. The one thing that the FPTP system has *traditionally provided us with is a system that guarantees the extremist nutjobs aren't allowed a position of power... I asterisk the word traditionally of course because gone unchecked for decades, it is allowing a similar result here in the UK right now sadly!
I see a pattern in you not actually liking real change here @molgrips 🙂
Sadly, he's all too representative of the average UK voter in this respect... And this is what needs to change! We need to be f***ing angry when the government is bending us over and shafting us because they can, rather than sitting back and taking it and then continually voting for them to do so...
Well, savers will get it, essentially.
You get 4-5% on savings accounts
Neither the interest rate on my current account or my savings account has changed since the BoE raised interest rates, but my bank hasn't been slow to jack up their SVR and fixed rate deals
The super rich will have very little money stored in cash in a savings account. It will all be invested in stocks. They won't benefit from this at all.
The super rich will have very little money stored in cash in a savings account. It will all be invested in stocks. They won’t benefit from this at all.
Unless some of those stocks are in companies that do benefit from higher rates (e.g. banks) or their wealth managers have bought/sold at the right time (or hedged) to benefit from improvements in market perceptions that may be attached to interest rate rises or they have funds which buy government bonds etc?
How would a 1% cut on basic rate tax make the average super rich person many £thousands per month better off?
Rich people get the money. How can you not know that?
Short answer, same reason you know water flows downhill.
Longer answer: Watch Gary Stevenson's Youtube.