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The point of very low interest rates

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SteelCamel
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The point of very low interest rates

#401441

Postby SteelCamel » April 3rd, 2021, 6:33 pm

Interest rates in general are pretty low at the minute. But my question is about the kind of accounts that have always paid minimal interest, the ones we're always being reminded to move money out of to get a better rate. Many of these accounts are now paying 0.01%. Put £1000 in this account for a year, and you'll get 10p. The question is why 0.01% and not simply 0%? The provider has to account for those pennies, and presumably report them to HMRC, issue statements, etc. What is the advantage to the provider of paying practically zero rather than actually zero? Is there some rule that treats interest-paying accounts differently to non-interest-paying ones that makes it worth the effort of paying pennies?

moorfield
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Re: The point of very low interest rates

#401505

Postby moorfield » April 3rd, 2021, 10:21 pm

SteelCamel wrote:Interest rates in general are pretty low at the minute. But my question is about the kind of accounts that have always paid minimal interest, the ones we're always being reminded to move money out of to get a better rate. Many of these accounts are now paying 0.01%. Put £1000 in this account for a year, and you'll get 10p. The question is why 0.01% and not simply 0%? The provider has to account for those pennies, and presumably report them to HMRC, issue statements, etc. What is the advantage to the provider of paying practically zero rather than actually zero? Is there some rule that treats interest-paying accounts differently to non-interest-paying ones that makes it worth the effort of paying pennies?



Because their old wheezing IT systems can't cope with a rate of 0% - I kid you not. A couple years ago I worked on a project to estimate the IT work needed to cope with negative interest rates at short notice. Like the Millenium Bug, it had simply never been thought of back in the day.

AleisterCrowley
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Re: The point of very low interest rates

#401511

Postby AleisterCrowley » April 3rd, 2021, 11:05 pm

NS&I Index Linked Savings Certs - currrently Index-linking + 0.01% !
A manifestation of the same problem perhaps ?
£15,000 nets you a tasty £1.50 on top of the linking..... enough for a half in 'spoons, once a year

stevensfo
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Re: The point of very low interest rates

#401560

Postby stevensfo » April 4th, 2021, 9:15 am

AleisterCrowley wrote:NS&I Index Linked Savings Certs - currrently Index-linking + 0.01% !
A manifestation of the same problem perhaps ?
£15,000 nets you a tasty £1.50 on top of the linking..... enough for a half in 'spoons, once a year


Even worse than that. My index linked certificates will reach the end of their 5-year life at the end of May. I have been informed that the index-linking will then switch from RPI to CPI! No doubt, the boffins are working on a way to fiddle the calculation of inflation rates even more. :x

I haven't yet decided what to do with them. Maybe withdraw half, if I'm allowed, and top up some ITs.


Steve

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Re: The point of very low interest rates

#401587

Postby AleisterCrowley » April 4th, 2021, 10:37 am

I roll mine over regardless- it's nice to have some index linked assets in addition to my (small) DB pension
I suspect they'll eventually move to a calculation involving the smaller of RPI/CPI divided by your shoe size

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Re: The point of very low interest rates

#401588

Postby dealtn » April 4th, 2021, 10:38 am

moorfield wrote:
SteelCamel wrote:Interest rates in general are pretty low at the minute. But my question is about the kind of accounts that have always paid minimal interest, the ones we're always being reminded to move money out of to get a better rate. Many of these accounts are now paying 0.01%. Put £1000 in this account for a year, and you'll get 10p. The question is why 0.01% and not simply 0%? The provider has to account for those pennies, and presumably report them to HMRC, issue statements, etc. What is the advantage to the provider of paying practically zero rather than actually zero? Is there some rule that treats interest-paying accounts differently to non-interest-paying ones that makes it worth the effort of paying pennies?



Because their old wheezing IT systems can't cope with a rate of 0% - I kid you not. A couple years ago I worked on a project to estimate the IT work needed to cope with negative interest rates at short notice. Like the Millenium Bug, it had simply never been thought of back in the day.


Not sure how true that would be. Most Banks (including the one I worked at) had a considerable number of account types that paid 0% interest, with no IT issues.

(Also negative interest rates worked too - but there would/will be issues such as when D/D instructions get "automatically" amended to collect a negative amount, for instance. This happened briefly on some base rate tracker mortgages, but didn't affect a huge number of accounts and payments).

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Re: The point of very low interest rates

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Postby moorfield » April 4th, 2021, 6:55 pm

dealtn wrote:Not sure how true that would be. Most Banks (including the one I worked at) had a considerable number of account types that paid 0% interest, with no IT issues.


Probably not, I was half joking, but you'd be surprised. When handling interest rates, sooner or later an IT system somewhere has to do some division, the savvy ar5e covering IT managers that know that just prefer not to rock the boat and go there ...

O/T, I've seen a lot of stupendous IT nonsense that goes on behind the scenes. About 10 years ago at a bank I worked for, somewhere in a data centre in South Yorkshire, there was an old mainframe ledger system still operating in pounds, shillings and pence. It was looking after some very old bonds, which (I hope) have probably all matured now. Developers had found it cheaper to wrap an old money/new money converter around it to feed a regulatory reporting system, rather than retiring and migrating it. And remember when you couldn't get your cash from cashpoints in 2012? - well that was another mainframe batch upgrade that went catastrophically wrong and you were shut out while your account statements were repaired...

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Re: The point of very low interest rates

#401705

Postby stevensfo » April 4th, 2021, 7:53 pm

moorfield wrote:
dealtn wrote:Not sure how true that would be. Most Banks (including the one I worked at) had a considerable number of account types that paid 0% interest, with no IT issues.


Probably not, I was half joking, but you'd be surprised. When handling interest rates, sooner or later an IT system somewhere has to do some division, the savvy ar5e covering IT managers that know that just prefer not to rock the boat and go there ...

O/T, I've seen a lot of stupendous IT nonsense that goes on behind the scenes. About 10 years ago at a bank I worked for, somewhere in a data centre in South Yorkshire, there was an old mainframe ledger system still operating in pounds, shillings and pence. It was looking after some very old bonds, which (I hope) have probably all matured now. Developers had found it cheaper to wrap an old money/new money converter around it to feed a regulatory reporting system, rather than retiring and migrating it. And remember when you couldn't get your cash from cashpoints in 2012? - well that was another mainframe batch upgrade that went catastrophically wrong and you were shut out while your account statements were repaired...


That made me laugh, and I can believe it. Even 'after' the financial crisis, banks are still managing such amazing cock-ups! :lol: Which just goes to show that in these days of zero interest rates, why should anyone keep their hard-earned in a bank. When I was a student, many people were just starting to be 'persuaded' to have their wages paid into bank accounts. But in those days, we also had the good old Post Office accounts.

Steve

PS Sorry to go off topic slightly, but I've never understood why, when having a bank account was still something rather 'special' for many people, the branches were everywhere and they treated us like kings. Now, when everyone is forced to have their money paid into a bank, the branches are closing and those that are left feel like a retreating Borg collective on the run from Captain Picard. 8-)

Steve

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Re: The point of very low interest rates

#401716

Postby moorfield » April 4th, 2021, 8:51 pm

stevensfo wrote:That made me laugh, and I can believe it. Even 'after' the financial crisis, banks are still managing such amazing cock-ups! :lol



I have more than enough material to write a book or two, and may well do when I leave the industry. My pet hate is software typos by idiot/illiterate developers not paying attention to detail which, once committed, become more hassle than its worth to correct. If you try explaining why to the Change Nazis who govern and sign off release processes (and don't really grasp themselves what they are doing), you usually end up making yourself look like a numpty so you don't bother. Thus, one ends up with a Customer Complaint System called a Customer Compliant System (yes, really) all over its back end. And don't get me started on developers who think it's funny to write software like "Bond jamesBond = ... " (you know who you are). There is a reason why my office ring tone used to be The Muppet Show...

(Apologies to O/P for going O/T again...!)

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Re: The point of very low interest rates

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Postby AF62 » April 5th, 2021, 8:04 am

moorfield wrote:
dealtn wrote:Not sure how true that would be. Most Banks (including the one I worked at) had a considerable number of account types that paid 0% interest, with no IT issues.


Probably not, I was half joking, but you'd be surprised. When handling interest rates, sooner or later an IT system somewhere has to do some division, the savvy ar5e covering IT managers that know that just prefer not to rock the boat and go there ...


On the same (off topic) theme but related to interest rates and computer systems, I encountered one system where the software had been written in the 1970s but was still in use in the 2020s and the 1970s writers had made a logical but fatal assumption.

The system calculated interest owed on debts by reference to the BOE base rate and held a table of those rates and the period of time that rate applied to. Then for each line in the table it would apply that rate to the debt for the number of days the money was owed during the period that rate existed.

However when doing the calculation for any line in the table it only applied the BOE rate to the debt for a maximum of (iirc) 1000 days. Presumably this was due to the 1970s writers being used to BOE rates changing frequently, even weekly, and had assumed it would be impossible to have a situation where the BOE rates didn’t change for three years or more.

And then 5 March 2009 happened. I would like to say the issue was discovered around March 2012 when this incorrect assumption impacted, but it wasn’t...

1nvest
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Re: The point of very low interest rates

#402052

Postby 1nvest » April 6th, 2021, 2:57 pm

A few weeks back and the BoE were advising banks to get ready for negative interest rates i.e.update banks systems to cater for 0% or negative.


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