The Bank of England changed it’s interest rate this past week from a historic 5.25% (a 16 year high!) to 5% but what does that mean for your money? This can have a huge impact on the economy, your savings and mortgage rates.
The Bank of England decides the interest rate this via a 9 person committee. The majority voted for the cut.
Good news for people with mortgages, your monthly payments may fall a little if you’re on a variable rate.
But for savers, you may see those interest rates also falling. Now is a great time to see what is available to make sure you can maximise your interest returns. I have a 5.1% interest rate on my instant access saver with Chase bank but I will look out for it changing then re-assess.
If the rate cut stimulates economic growth and leads to higher inflation, the real value of your savings could decrease. This is because the purchasing power of the money you have saved might be eroded if prices rise faster than the interest you earn.
Lower interest rates might encourage savers to look for alternative investment opportunities that offer higher returns. The stock market as a whole has grown on average by around 10% per year but it is more volatile and therefore not advised unless you wish to invest for a longer period (upwards of 10 years). The longer your money is in the stock market in a diverse fund, the less chance there is of losing money. I say 10 years because at that point it becomes much less likely that you will lose money on average. This makes saving for retirement perfect for the stock market.
Short term savings should always be kept in more accessible savings accounts such as instant access savers, cash ISA’s, LISA’s (for mortgage deposits) or premium bonds.
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*Quick disclaimer – I am not a financial advisor, I do not give financial advice and you are responsible for your own financial wellbeing 🙂