Polly on Savings

Not quite sure where to start today, the logic running through this piece is so tangled.

The subprime savers are the wretched Farepak people who were not even borrowing money, only saving for zero interest. How can a company fail when all it did was take in poor people\’s money for a whole year, pay them no interest, in exchange for an above-high street-priced catalogue of goods at Christmas time? There was no credit or interest offered, only a "safe" place for cash. Families living on the edge want to put Christmas money out of reach. Why ordinary banks aren\’t offering the same fixed-date deal, with no or low interest, is a mystery.

I\’m pretty sure that you can in fact deposit money in a bank account at no interest you know. Not 100% sure, but pretty certain.

No government will give a blank cheque against every failed enterprise, but the difference was in the instant reaction to Northern Rock. Overnight all bank savers got a cast-iron £35,000 guaranteed – a sum unimaginable to Farepak or First Solution savers.

Wasn\’t actually much of a change though. £32,000 or so was already guaranteed .

In the 10 years since Labour came to power promising to start a people\’s bank to give modest access to credit to those in most need, nothing has been done. Basic bank accounts now receive benefits, pensions and wages, but they offer no credit, not the smallest overdraft facility.

See, Polly agrees, you can deposit money at no interest in a bank account.

People on low incomes need ordinary bank accounts with easy access via cash machines, and a credit facility at a fair interest, like everyone else.

Ah, now we\’ve morphed to offering credit, rather than a safe place fo savings. Something a little different, isn\’t it?

Poverty is their problem: most are relatively prudent, or else they\’d starve (benefits for a family of four total only £200 a week).

I beg your pardon? Is that really the number? Including housing benefit? Seriously, I don\’t actually know and would like to.

That\’s where this always returns. People on subprime pay and benefits are just too poor to save – and yet they have to borrow when minor mishaps cause financial catastrophe. So loan companies can charge what they like – check out the Provident\’s site for loans at 183% APR – often with worse rates door to door.

Mhmmm. 183% APR eh? Wonder how they\’re making money on that. There are in fact non-profit lenders in the US who offer this sort of credit to the poor:

But alternative payday loans have also drawn criticism from some consumer advocates, who say the programs are too similar to for-profit payday loans, especially when they call for the principal to be repaid in two weeks. At GoodMoney, for example, borrowers pay $9.90 for every $100 they borrow, which translates to an annual rate of 252 percent.

Sounds like Provident is offering a good deal really.

11 comments on “Polly on Savings

  1. Not wishing to imply that Dear Polly is in any way anything other than mad, but..

    “I’m pretty sure that you can in fact deposit money in a bank account at no interest you know. Not 100% sure, but pretty certain.”

    She was specifically referring to the “lock it away so I can’t touch it” aspect of Xmas saving (you know, out of reach of the urge to splurge any savings in Argos). AFAIK, no bank offers an easy form of this.

    “Wasn’t actually much of a change though. £32,000 or so was already guaranteed.”

    No. 100% of £35K is now guaranteed. Before it was 100% of the first £2K then 90% of the next £33K, giving a total of £31,700 back for £35K deposited, leaving £4300 lost. That last bit is important: it’s rational to queue outside Northern Rock for £4300.

  2. Fixed sum repayments weekly always give you colossal annualised interest rates, through the magic of compounding. If I lend you £100 for a week and at the end of the week you pay me back and buy me a £2 pint as thanks, that’s a 280% annual rate (1.02^52). I think.

    Incidentally, Polly herself answered her own ‘why oh why did they bail out NR but not Farepak?’ question quite early on in the article – because Farepak didn’t threaten a systemic collapse of the banking system. That’s why there are lender of last resort provisions for banks, not for Xmas savings schemes. She didn’t then seem to notice she’d already answered the question, as she spent the rest of the article asking ‘why oh why?’

  3. If Polly thinks this loan business is so damn profitable why doesn’t she invest in it. I mean really, at the rates quoted these usurers are rolling in dough, filthy with it, pure profit, no expenses.

    I for one would like to borrow a bundle of $ from her. I promise I’ll pay her back, really and truly, I’m a good reliable sort, just like all people on the dole are, even better.

    Ha. ha. Ha.

  4. People on subprime pay and benefits are just too poor to save

    They also face no incentive to save, having had their subprime pay taxed in the first place, and finding any interest they make on the savings taxed as well.

  5. One of the attractions of Farepak and their ilk is that you can save money without The Government knowing about it. Stick it in a bank account, interest accruing or not, and The Government will become aware of it and adjust you benefits accordingly.

  6. Anyway why would a good secularist and outspoken hater of all things religious, like Polly, have any sympathy for people saving money to celebrate a religious holiday?

  7. “I’m pretty sure that you can in fact deposit money in a bank account at no interest you know. Not 100% sure, but pretty certain.”

    Actually Tim: this is quite hard to do.

    All the main high St banks are falling over themselves to offer interest on current accounts, let alone savings accounts from which you elect not to withdraw except once per year.

    I think you’ll really struggle to find a bank – a non-Islamic bank anyway – that will offer you an account with no credit facility AND no interest.

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