Interest rates - why bother?

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Forums › Finance and wealth management › Interest rates - why bother?

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1779 posts

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#2551471 28-Aug-2020 16:49

sen8or:
For those that fondly remember investment returns of 8%, don't forget that they also came with mortgage rates of 12-15% or more for borrowers.

We paid 16% in mortgage interest back yonder days, and the term deposits were around 12%

When all is going well shares are ok but now with Covid so many blue chip companies are going under daily as well as smaller ones. So much for my Air NZ shares now too. I could paper a feature wall with various lost shares over the years. Keeping them for the great, great grand kids to admire.

It feels unsafe to have cash in a NZ bank any more. Remember the Cyprus banks Bail in? At least depositors there were guaranteed up to a 100k and that was Euros. If that should happen here you would get nothing. It’s frightening.

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mattwnz

19378 posts

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#2551496 28-Aug-2020 17:40

Eva888:

It feels unsafe to have cash in a NZ bank any more. Remember the Cyprus banks Bail in? At least depositors there were guaranteed up to a 100k and that was Euros. If that should happen here you would get nothing. It’s frightening.

NZ really needs a deposit guarantee scheme IMO. There should be no reason why anyone should ever lose money in a NZ bank. In Australia I think their guarantee is about 250k per bank. We need the same here. We did used to have a bank guarantee scheme during the financial crisis. Usually it is the ones who have done the right things and saved, that get bitten.

mattwnz

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#2551497 28-Aug-2020 17:43

Eva888:

We paid 16% in mortgage interest back yonder days, and the term deposits were around 12%

Houses though were far cheaper back them, when compared to income. So you were probably paying a similar percentage of income to service that mortgage, as you would be now as a first time house buyer on a new low interest rate mortgage, for that same house at todays market value. But you would have likely needed a far smaller deposit back then, due to the house being cheaper vs income. If interest rates ever rise, then incomes are also going to need to rise too, otherwise some people won't be able to service their mortgage.

Handle9

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#2551500 28-Aug-2020 17:49

mattwnz:
Eva888:

It feels unsafe to have cash in a NZ bank any more. Remember the Cyprus banks Bail in? At least depositors there were guaranteed up to a 100k and that was Euros. If that should happen here you would get nothing. It’s frightening.

NZ really needs a deposit guarantee scheme IMO. There should be no reason why anyone should ever lose money in a NZ bank. In Australia I think their guarantee is about 250k per bank. We need the same here. We did used to have a bank guarantee scheme during the financial crisis. Usually it is the ones who have done the right things and saved, that get bitten.

Why? That allows banks to ramp up their risk profile while socialising their losses.

Providing the banks are regulated correctly there isn't a need for it.

mudguard

1726 posts

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#2551510 28-Aug-2020 18:12

Handle9:
mattwnz:

NZ really needs a deposit guarantee scheme IMO. There should be no reason why anyone should ever lose money in a NZ bank. In Australia I think their guarantee is about 250k per bank. We need the same here. We did used to have a bank guarantee scheme during the financial crisis. Usually it is the ones who have done the right things and saved, that get bitten.

Why? That allows banks to ramp up their risk profile while socialising their losses.

Providing the banks are regulated correctly there isn't a need for it.

Exactly. Why should taxpayers be on the hook for those who can afford to have money in the bank?

Rikkitic

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#2551515 28-Aug-2020 18:27

Taxpayers may be on the hook for a lot more if the lack of a guarantee contributes to a collapse of confidence in the banking system, resulting in a run on banks and mass panic.

Plesse igmore amd axxept applogies in adbance fir anu typos

mudguard

1726 posts

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#2551522 28-Aug-2020 18:35

Rikkitic:

Taxpayers may be on the hook for a lot more if the lack of a guarantee contributes to a collapse of confidence in the banking system, resulting in a run on banks and mass panic.

Doesn't this always come back to To Big To Fail? If that's the case. Then don't let them get big enough where this could be the issue. Joe and Jane Blogs earning $40k a year aren't likely to care about a run on the bank if they have nothing in it. They'll care about their jobs, which probably aren't in the financial sector.

mattwnz

19378 posts

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#2551525 28-Aug-2020 18:44

Handle9:

Why? That allows banks to ramp up their risk profile while socialising their losses.

Providing the banks are regulated correctly there isn't a need for it.

The government are already planning on bringing it in, which was prior to Covid. But it was only for 50k per bank. But the fact that Australia already have it up to 250k per bank, and most of our banks are Australian owned, IMO it makes sense for us to match. I understand some people have moved their money to Oz as a result.

mattwnz

19378 posts

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#2551526 28-Aug-2020 18:51

mudguard:

Exactly. Why should taxpayers be on the hook for those who can afford to have money in the bank?

You mean those people who have done the right thing and saved? Including all the older people who have their money saved for their retirement. Having money in the bank isn't an investment, especially with todays rates. It is instead supposed to be a safe place to keep ones money. The alternative could be for people to withdraw all their money and keep it in a safe, or to move it into another form of asset such as gold or houses, but that just pushes up those prices.

It isn't possible to insure money in the bank, like it is if someone has a house. Likewise almost every OECD country has a deposit guarantee scheme. NZ is planning one, but it isn't as good as other countries.

Eva888

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#2551529 28-Aug-2020 18:55

mudguard:
Rikkitic:

Taxpayers may be on the hook for a lot more if the lack of a guarantee contributes to a collapse of confidence in the banking system, resulting in a run on banks and mass panic.

Doesn't this always come back to To Big To Fail? If that's the case. Then don't let them get big enough where this could be the issue. Joe and Jane Blogs earning $40k a year aren't likely to care about a run on the bank if they have nothing in it. They'll care about their jobs, which probably aren't in the financial sector.

Joe and Jane Blogs with nothing in the bank however will likely be working for the Boss that worked hard in his business and hired them. Boss loses his money in a bank Bail In...Blogs lose their jobs, that will make then care pretty fast.

Handle9

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#2551530 28-Aug-2020 18:56

mattwnz:
mudguard:

Exactly. Why should taxpayers be on the hook for those who can afford to have money in the bank?

You mean those people who have done the right thing and saved? Including all the older people who have their money saved for their retirement. Having money in the bank isn't an investment, especially with todays rates. It is instead supposed to be a safe place to keep ones money. The alternative could be for people to withdraw all their money and keep it in a safe, or to move it into another form of asset such as gold or houses, but that just pushes up those prices.

It isn't possible to insure money in the bank, like it is if someone has a house. Likewise almost every OECD country has a deposit guarantee scheme. NZ is planning one, but it isn't as good as other countries.

The taxpayer doesn't underwrite other investments. Despite being low return, and with corresponding risk, a bank deposit is a form of investment.

Many deposit guarantee schemes are actually insurances, where there are levy's to fund it, rather a government guarantee. If depositors pay for the scheme it is much fairer. If it is 100% tax payer funded it just encourages banks to ramp up their risk profile.

Fred99

13684 posts

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#2551532 28-Aug-2020 19:05

mattwnz:

Handle9:

Why? That allows banks to ramp up their risk profile while socialising their losses.

Providing the banks are regulated correctly there isn't a need for it.

The government are already planning on bringing it in, which was prior to Covid. But it was only for 50k per bank. But the fact that Australia already have it, and most of our banks are Australian owned, IMO it makes sense for us to match.

We have the OBR to replace guarantees. While taking a "haircut" on deposits if OBR was activated might be unpleasant, a bank run with deposit guarantee probably wouldn't be any better. It's all very well to have a deposit guarantee, but if the end result is that you can withdraw guaranteed deposits in cash, but you need a wheelbarrow full of cash to buy a loaf of bread, and to do that you've mortgaged your grandchildren, then there's a problem.

That said I think the OBR is flawed too - but you'd never find out until too late. For example if the economic environment was such that say BNZ had a run and OBR was activated and next day the tally indicated that depositors would take a 20% haircut, and you had cash deposits at ASB - would you want to leave that cash in ASB? I don't think it (OBR) would work in case of stopping contagion if there was a run on any major bank.

Then again if that happens, everything is so borked you'll be needing to have planted turnips long ago - ready to harvest for dinner.

Eva888

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#2551544 28-Aug-2020 20:05

OBR, Bail in's...whatever acronym one likes to call them all result in you the responsible depositor losing your hard earned tax paid money, not through your fault but because of the bank using your deposits inappropriately.

Why should a depositor pay to insure a bank that is gambling with your money, and whose banking service you pay hefty fees for. The government is there to regulate and control the banks to protect its citizens. If the bank fails then the government is complicit for not doing its job in regulating and auditing efficiently and protecting its taxpayers deposits.

As in other countries now more than at any other time we need Government Insurance for people’s savings and maybe it’s time to start writing to our politicians demanding this.

driller2000

932 posts

Ultimate Geek

#2551756 29-Aug-2020 10:05

mattwnz:

mudguard:

Exactly. Why should taxpayers be on the hook for those who can afford to have money in the bank?

You mean those people who have done the right thing and saved? Including all the older people who have their money saved for their retirement. Having money in the bank isn't an investment, especially with todays rates. It is instead supposed to be a safe place to keep ones money. The alternative could be for people to withdraw all their money and keep it in a safe, or to move it into another form of asset such as gold or houses, but that just pushes up those prices.

It isn't possible to insure money in the bank, like it is if someone has a house. Likewise almost every OECD country has a deposit guarantee scheme. NZ is planning one, but it isn't as good as other countries.

Good for them i.e those who have, for whatever reason managed to accumulate some assets / wealth.

But I don't see why the govt ie. my fellow citizens/taxpayers - should guarantee MY money, given its MY decision where I put it - so it is MY risk to take on.

Rikkitic

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#2551811 29-Aug-2020 10:24

driller2000:

Good for them i.e those who have, for whatever reason managed to accumulate some assets / wealth.

But I don't see why the govt ie. my fellow citizens/taxpayers - should guarantee MY money, given its MY decision where I put it - so it is MY risk to take on.

I don't get this argument. Banks aren't really a choice. People have to have bank accounts to exist in our society. A bank account isn't an investment for most people. It is the only practical way of keeping your money and having it on hand as needed. I think a good argument can be made for placing a limit on the amount that is guaranteed, but there should still be something. I think the FDIC in America was set up after the run on banks in the Great Depression. I think it has or had a limit of $10,000 per deposit. (I'm not sure of this.)

I don't see why there could not be some kind of government-backed insurance scheme that people had to pay a reasonable fee for and could opt out of. Then they would at least have an option. Otherwise there is always the risk of collapse if people lose confidence. It happened once. There is no reason it couldn't happen again.

Plesse igmore amd axxept applogies in adbance fir anu typos

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