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You haven't been earning anything on your savings for quite a long time. Surprised? Well, it seems from the general outpouring of rage last week that lots of people might be.
Before and after the news that the base rate was cut to an all-time low, people were out in force on the internet talkboards moaning about the terrible impact of a rate cut on their savings. Would it even be worth putting money away any more, they asked.
Well, it hasn't been "worth it" for some time if you judge the value of savings only by the interest rate you earn. Even if you were earning the best rate of 5% on £1,000, you would already be in the savings equivalent of "negative equity". The £50 you should have earned has been eaten away by 4% inflation and, to a lesser extent, tax, giving you a pitiful annual return of minus £10 if you are a higher rate tax payer.
The point of all these figures is that only the very wealthy lose substantial amounts from a fall in savings interest: for the vast majority of us, a change in savings rates means little more than the loss or gain of a few pounds a year. The good news for savers is that inflation is dropping and this will have much more of an impact on what they earn than if banks and building societies were to leave rates untouched after last week's announcement, as many seem to expect them to.
So should people stop saving? Definitely not. Everyone should have something put away for a rainy day. And I think there needs to be some perspective about the real impact of falling rates on our overall wealth when, for example, staggering energy prices and crippling council tax bills are much more of a problem.
David Cameron's pathetic headline-grabbing proposal last week has only added to the hysteria. His pledge to help the "innocent victims" of the downturn, by scrapping taxes on savings interest is a gesture that would amount to a few extra pounds in most savers' pockets. The only positive to come from it would be if it encouraged Gordon Brown to raise the maximum amount that can be invested tax-free in an Isa. Cameron's claim that it would help pensioners is a lot of gas. According to ONS figures, 3.8 million pensioners have total savings of less than £1,500 - they deserve real financial help, not a paltry move on savings tax.
The good news: this is a chance to overpay your mortgage, perhaps, or get rid of that credit card debt which has, possibly, for some people been festering largely unpaid for years because the rate on that overseas internet savings account was too good to miss.
l.bachelor@observer.co.uk
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