Investing for the long haul

It is fair to say that such prudent cash saving is currently not richly rewarded: a result of a low interest rate backdrop and – although a decade has passed – the continued fallout from the wicked 2008 financial crisis.

Although the last move in the Bank of England base rate was cheerfully upwards, it looks as if a combination of Brexit/no Brexit/political meltdown and the possibility of a global recession – triggered by continued squabbling on trade issues between China and the US – will choke off any further increases.

Recent events suggest that if there is an adjustment to the base rate, it will be downwards not upwards

Indeed, recent events suggest that if there is an adjustment to the base rate, it will be downwards not upwards. Savers, it seems, will continue to grumble into their morning bowls of porridge. They are the sacrificial lambs of a decade scarred by austerity.

In recent weeks, a number of banks and savings organisations have behaved as if a base rate cut is now a dead cert. Goldman Sachs has lowered the interest rate on its popular Marcus instant access account to 1.45 per cent from 1.5 per cent, while Lloyds Bank – not renowned for giving savers much to cheer about at the best of times, has cut its Instant Cash Isa rate to 0.2 per cent from 0.35 per cent.

In response to these moves, Andrew Hagger, savings expert at financial website MoneyComms, warned that the interest rates on some easy access accounts could be “heading towards zero or pretty close”.

Given some banks are already offering a meagre 0.15 per cent (for example, HSBC Flexible Saver), it is hard to argue against Mr Hagger. Savings misery will rule for a lot longer yet. 

But probably the biggest signal on where we are heading on savings rates has come from government bank National Savings and Investments – a financial institution much loved and much used by financial advisers on behalf of clients, but one that is no more than a financial tool of the government. 

NS&I has just withdrawn from general sale its one and three-year Guaranteed Income Bonds and Guaranteed Growth bonds, justifying the move on the grounds that the bonds have become too expensive to offer. 

Currently, the government can obtain cheaper finance on the money markets (through the issuing of gilts) and when it can do this, it discourages NS&I from raising too much money from retail savers.

At the end of the day, NS&I is duty bound to strike a balance between the interests of its customers (25m of them) and taxpayers, while ensuring at all times the stability of the broader financial services sector. In other words, it must not offer savings rates that the banks and building societies cannot compete against.

It could be argued at present that NS&I is failing on all three counts, paying savers too much interest, knocking spots off most savings accounts offered by mainstream banks and building societies, and raising expensive money that ultimately ‘costs’ UK taxpayers.

My view is that NS&I has more bad news to break to savers in the not-too-distant future. 

Although its recent focus on attracting younger savers should protect the 1.4 per cent effective annual interest rate underpinning Premium Bonds (more child-friendly than ever) and the 3.25 per cent paid on its Junior Isa, other accounts look vulnerable to a trim here and a snip there. 

They include the likes of its monthly income-producing Income Bonds (1.15 per cent and popular with income-searching pensioners), Direct Isa (0.9 per cent) and Direct Saver (1 per cent).

Accounts that in the case of Income Bonds and Direct Saver also have generous maximum savings limits of £1m and £2m respectively, and of course the reassurance that every single penny of customers’ savings is covered from future trouble and strife (another 2008 financial crisis, for example) by the Treasury.

While some savers may be able to find solace in using one of the new style cash management accounts – offered by the likes of Hargreaves Lansdown, Raisin UK, Octopus and Flagstone – the future for savings looks bleaker than it has done for a while.

Indeed, with dividend income under extreme pressure in the UK as a result of a challenged economy and pressurised corporate profits, the lot of investors – as well as savers – could well deteriorate in the months ahead.

Link Group said as much a month or so ago when revealing data showing that UK dividends rose to a record £38bn in the second quarter of this year.

In reporting these eye-catching figures it said that the “UK’s dividend clothes are starting to look a bit threadbare underneath”.

All rather scary – and I have not even mentioned the damage a Jeremy Corbyn-led government could do to the UK stock market. A time, therefore, for financial advisers to rise to the challenge by reassuring clients and nursing them through the difficult days and months ahead, to reinforce the merits of investing for the long term – through thick and thin.

Jeff Prestridge is personal finance editor of the Mail on Sunday