Interest Rates

[noirua]

Ahhh, I love the smell of EuroPoms in the morning....

Thanks Aussiejeff for that kind comment, acceptable only from Wodonga or is it expected.

...anyway, interest rates have come down 0.75% in the Eurozone to 2.5% and 1% in the UK to 2%.
Australia looks out of line at 4.25% and we may be living in hope things won't tank as they have in America and Europe, some hope. Property prices down 16.1% on the year in the UK and Spain has reversed suddenly and so seriously that many property companies have moved from boom to bust in a matter of a few months.

 

[Aussiejeff]

Thanks Aussiejeff for that kind comment, acceptable only from Wodonga or is it expected.

...anyway, interest rates have come down 0.75% in the Eurozone to 2.5% and 1% in the UK to 2%.
Australia looks out of line at 4.25% and we may be living in hope things won't tank as they have in America and Europe, some hope. Property prices down 16.1% on the year in the UK and Spain has reversed suddenly and so seriously that many property companies have moved from boom to bust in a matter of a few months.

*sniff* Hi noirua

So, following the latest IR dive what's the current typical depositor's savings rates in UK and Eurozone? Must be getting to a point where holding money in a cash account is going to cost depositors money over time?

In fact, how effective are GuvMint "bank deposit guarantees" around the planet going to be at retaining much needed depositor's funds in banks, if depositor's savings rates approach 1 or 2%? I haven't yet seen any "expert" commentary on that rapidly approaching scenario. Oh, but then GuvMints want everyone to SPEND their cash. But that would hurt the banks assets base? Oh, I'm confussed!

Anyone care to offer their view?

**STAMPEDE!!!!**

 

[noirua]

*sniff* Hi noirua

So, following the latest IR dive what's the current typical depositor's savings rates in UK and Eurozone? Must be getting to a point where holding money in a cash account is going to cost depositors money over time?

In fact, how effective are GuvMint "bank deposit guarantees" around the planet going to be at retaining much needed depositor's funds in banks, if depositor's savings rates approach 1 or 2%? I haven't yet seen any "expert" commentary on that rapidly approaching scenario. Oh, but then GuvMints want everyone to SPEND their cash. But that would hurt the banks assets base? Oh, I'm confussed!

Anyone care to offer their view?

**STAMPEDE!!!!**

Hi Aussiejeff, I hold about a quarter of my cash in British Pounds so I'm feeling concerned, and equally worried about the Aussie.
The main banks in the UK seem to have so many accounts that it's difficult to follow what goes on. They have ISA accounts that pay interest which is not liable to tax and these pay from 2.5% to 5.5% (Post Office accounts pay 2.6% or 3.3%) depending on how big the bank or building society is and whether it meets certain standards, terms, bonuses etc., etc., .
Other rates vary from 0.1% to 6.1%, depending on the above and whether the account has cash cards, cheque books etc., etc.,
I guess they'll all go down again shortly.

It's all a mess and totally confusing

 

[Aussiejeff]

Hi Aussiejeff, I hold about a quarter of my cash in British Pounds so I'm feeling concerned, and equally worried about the Aussie.
The main banks in the UK seem to have so many accounts that it's difficult to follow what goes on. They have ISA accounts that pay interest which is not liable to tax and these pay from 2.5% to 5.5% (Post Office accounts pay 2.6% or 3.3%) depending on how big the bank or building society is and whether it meets certain standards, terms, bonuses etc., etc., .
Other rates vary from 0.1% to 6.1%, depending on the above and whether the account has cash cards, cheque books etc., etc.,
I guess they'll all go down again shortly.

It's all a mess and totally confusing:confused:

Works for me!

Well, Canada has just chucked the towel and "officially" announced it is in Recession, at the same time slashing IR's to 1.5% - the lowest since 1958.

Lil Ozzie Bleeder might have to be bled a bit more.....and soon!

 

[Aussiejeff]

On the subject of IR's, if I had say, 50 million cash and wanted to borrow a further 150 million to develop a manufacturing business, what's the best IR's for an investment loan of that size atm?

Would I get an investment loan at all?

Obviously I'm dreaming and haven't a clue, so I'm waiting for an expert (or two) to set me straight.

 

[noirua]

The UK has reduced interest rates to 1.5% from 2%. This is the lowest in the Bank of England's 315 year history: Founded in 1694.
Interest rates have come down from 5% last October.

 

[Glen48]

Word is we will see a .75 - 1% drop next month..I agree and then not long after we will be about the same as the rest of the World.
Japan is looking a rates of less than 0%

Essentially, quantitative easing is a monetary policy tool that central banks use when they run out of room to cut interest rates. "Quantitative" refers to the money supply, and easing money supply means to increase it. So, quantitative easing basically involves printing money to buy a variety of securities with the end goal of flooding the financial markets with cash or liquidity. This increases the amount of currency in circulation, reducing the currency’s value and increasing inflation

Think of it this way: Imagine there were just 100 of a football star's autographed jerseys in the world and each is worth USD $1,000. Suddenly, another 1,000 autographed jerseys are discovered, and (as you might expect) each is now worth a lot less. Having more jerseys in the market at lower prices hopefully spurs more activity in the market. In many ways, the goal of quantitative easing is the same. By flooding the market with liquidity, the central bank aims to promote lending and prevent a shortage in the future. Of course, quantitative easing is much more involved than the example given above.

From GFT report.

 

[Glen48]

In 1929 the depression started now in 2009 the same thing????

 

[Wysiwyg]

The UK has reduced interest rates to 1.5% from 2%. This is the lowest in the Bank of England's 315 year history: Founded in 1694.
Interest rates have come down from 5% last October.

And a link here too for those that want a read or listen ....

Text ... http://www.bankofengland.co.uk/publications/news/2009/001.htm


Video ... http://forex.fxdd.com/trading-news/...-rates,-how-does-affect-your-trading?-find-ou

 

[dalek]

CBA reduced their interest rate offer on 90 day deposit from 5.5% to 4.8% yesterday !!
I guess in anticipation of a .75% Reserve Bank move ??

 

[skyQuake]

Aussie rates are priced in to hit 2.6% by Jul.

 

[Go Nuke]

I think the reserve bank will just keep cutting until the banks pass on cuts to an "acceptable" level or where the RBA would like to see them at.

I do get a bit annoyed at all the hype surrounding IR being at all time lows etc.
I have an investment property that came out of a 3 yr fixed interest rate and has now gone to the variable rate....and guess what...my repayments are HIGHER today than what they were 3 years ago.

Alot of people are shocked to hear that actually.

The RBA will definitely cut again in Feb and I think by 50 basis points.
The news just keeps getting worse from new housing starts and manufacturing still well and truely contracting plus many more factors.

I could be wrong here but its better to be holding share in a bank stock today and making more money of the dividend yields, than it is to have your money in the bank with current interest rates

As for interest on savings accounts...wow, since when are Australians good at saving?? lol

 

[Smurf1976]

One thing I don't understand is how lowering interest rates is supposed to immediately help consumers?

I have a mortgage with the minimum payment being $650 as of November 2007. Then they put it up in two steps to $693 as interest rates went up.

Now interest rates have fallen, but the minimum payment is still $693. The lower rates are certainly helping me pay off the debt faster (I pay more than the minimum anyway) but ít's done absolutely nothing to put more money in my pocket to spend right now.

Am I unusual? Do most people's payments drop when interest rates drop? It's one of the major banks and a pretty standard loan.

 

[Julia]

CBA reduced their interest rate offer on 90 day deposit from 5.5% to 4.8% yesterday !!
I guess in anticipation of a .75% Reserve Bank move ??

Bet they didn't similarly reduce their lending rate!

 

[mayk]

Bet they didn't similarly reduce their lending rate!

I have a simple question. In fractional reserve banking. Suppose I put $100 in the bank, and fractional banking is say 1:10, so the bank can lend ten times this amount. So the bank can lend up to $1000.

Now suppose the bank is giving me 5% on my $100, but they are charging interest on $1000 say at 5.5%. So the bank can earn up to $55, while giving me only $5.

From my understanding it is not just the spread of .5% between the lending and borrowing, but the fraction simply multiplies their profits.

Can someone shed some light on this. Correct me, if it does not work this way.

 

[Aussiejeff]

I could be wrong here but its better to be holding share in a bank stock today and making more money of the dividend yields, than it is to have your money in the bank with current interest rates

Maybe that is one of the major bank's strategies by rigging the rates in their favour (ie maintain relative high lending rates while forcing deposit rates down)?

The way things are going, the only stocks with any sort of government-backed guarantee in the short to medium term are MAJOR BANKS. They have made enough gains in deposit bases to allow them to cut deposit rates and start to pressure people inot converting to bank shares.

Would I be correct in thinking that since they have bolstered their deposit base sufficiently for now, they would prefer heaps more investing in their shares again, where the dividends can be nicely manipulated "just so", rather than having to pay interest back on deposit accounts?

 

[kotim]

Mayk, your basically correct but what is most important is to understand what a deposit is. When you go for a home loan, you give the bank power of attorney and what the bank does is create a promissory note based on your promise to pay back the loan etc, so for eg, if you go for a 300 grand loan and get it they create a 300 grand promisory note which while on their books shows that in asset and liability column as being equal 300 grand out and 300 grand in, but waite, the promisory note they create actually is a deposit, so therefor the promisoory note they create in your name is actually a 300 grand deposit and with fractional reserve banking they can then lend out multiples of that 300 grand.

Now that is why property/asset values are so important. If you use 10-1 lending ratio and the 300 grand loan against the 300 grand house and the house drops to say 250 grand then they are not allowed to have 300 grand lent out against a 250 grand value so they have to bring the amount of loan out there down. They do this accross the whole book. Ultimately in the good old USA that is why their plunging proprty market result in the near collapse of most of their bank etc.

Ultimatley it comes down to what is a deposit.

At least that is why my study reveals.

 

[wayneL]

I have a simple question. In fractional reserve banking. Suppose I put $100 in the bank, and fractional banking is say 1:10, so the bank can lend ten times this amount. So the bank can lend up to $1000.

Now suppose the bank is giving me 5% on my $100, but they are charging interest on $1000 say at 5.5%. So the bank can earn up to $55, while giving me only $5.

From my understanding it is not just the spread of .5% between the lending and borrowing, but the fraction simply multiplies their profits.

Can someone shed some light on this. Correct me, if it does not work this way.

No it doesn't work that way. Wiki article => http://en.wikipedia.org/wiki/Fractional-reserve_banking

 

[noirua]

South Korea reduced their key interest rate from 3% to 2.5% yesterday. Rates have come down in the last three months in five steps from 5.25%.

 

[mayk]

No it doesn't work that way. Wiki article => http://en.wikipedia.org/wiki/Fractional-reserve_banking

Thanks for the link, I think my example will be true if there is only one operating bank and all the people deposit the money back in to the bank.

Theoretically it is still possible, and the probability of it occurring approaches 1, as the number of banks in the system approach 1.

A lower number of banks in a monetary setting can share larger chunks of profit (like in Australia). For example, there is a 1/4 chance of deposits coming back to the same bank (considering main big four banks).