It’s now more than a decade since the Bank of England took the unprecedented step of cutting interest rates to below 1%. Many experts began 2019 predicting rates would start to gradually rise again. However, by the halfway stage of the year base rate is still at 0.75% and now some commentators believe they’re more likely to go down than up.
If you’ve a mortgage, this low interest rate environment has been good. It has been cheaper to borrow money, meaning lower mortgage repayments compared to 12 years ago, when base rate was as high as 5.75%.
Average bank/building society rate of a two-year fixed rate mortgage, 75% Loan-to-value
| October 2007 | 6.11% |
| May 2019 | 1.66% |
Source: Building Societies Association
However, when it comes to saving your money, low interest rates has spelled bad news. This is because savings account rates have fallen to record low levels.
Average bank/building society rate of a one-year fixed rate bond
| October 2007 | 6.15% |
| May 2019 | 0.93% |
Source: Building Societies
The difference in returns is stark.
- In October 2007, £50,000 in savings would have earned £3,075 gross interest, based on the average one-year fixed rate bond.
- Yet based on the May 2019 average rate, you’d only achieve gross interest of £465.
- If rates were to remain the same as May 2019, it would take you more than six years to earn the same amount of interest as you could have achieved in 12 months, back in 2007.
What does the future hold?
The ongoing uncertainty over Brexit has clouded the Bank of England’s thinking on interest rates. The governor, Mark Carney, has stated a smooth progress on Brexit would lead to gradual rate hikes. However, Carney also said a no-deal Brexit could cause a further cut in interest rates, in order to provide economic stimulus.
Beyond Brexit, there are global economic risks that could limit the potential for rate rises. For example, Carney cited the ongoing trade wars instigated by the US that has taken aim at China, Mexico, India and the European Union.
Even if rates do begin to rise again, we’re clearly a long way from returning to the days of 5%+ interest rates. All of this could be having a negative impact on your long-term financial plans.
What are your options?
Savings accounts remain a great way for preparing for short-term goals like a holiday. It’s also wise to have savings for just-in-case emergencies like an unexpected bill. Yet the low interest rates of the past decade could be hurting your long-term financial well-being.
This is why investing your money could prove a more rewarding approach. History shows investing for the long-term could provide you with better returns than regular savings accounts.
There are risks with investing. However by speaking to a financial adviser you can find an approach to risk and reward that suits your personal circumstances – allowing you to hear recommendations you’d be comfortable considering.
No pressure advice tailored to you
NAHT wants to ensure you and our other members have access to expert financial advice to plan your long-term future. That’s why we’ve partnered with Skipton Building Society for more than a decade.
Skipton has advisers across the country who can meet you when and where is convenient for your busy lifestyle. They’ll take the time to understand your needs before researching and presenting personal recommendations. This includes reviewing your savings to see if you could be making more of your money.
For your peace of mind, you should know there’s no obligation to act on Skipton’s advice, or an upfront fee to pay to hear them. It could prove really worthwhile finding out how Skipton could help you make stronger plans and support your financial well-being.
By investing with Skipton, the aim is to grow your money by a greater extent than is available through cash savings accounts to help you achieve your goals. Although funds are not like bank and building society savings accounts. It does mean placing your capital at risk, as its value can fall as well as rise and you may get back less than you originally invest.
If you’re interested in learning more about how Skipton Building Society and NAHT can help you, please visit: https://www.skipton-naht.co.uk/