UK Savings Account Interest
Rates In Disarray!
What to Do?
Savings account interest rates have been
cut in half since 2008!
These drastic interest rate cuts have caused record low rates of return on your savings. In fact, after taking inflation into account, all savings accounts are currently paying a negative rate of interest.
Be Alert You're Been 'Robbed'!
More than ever you need to remain alert and search for the best savings interest rates, and move your money around when you find the better high savings account interest rates. Of course, you may have to accept some limitations on your high interest savings account in order to secure the higher rate.
When you are considering alternatives to low interest rates, in order to beat low interest rates as well as inflation, you need to be prepared to accept some risk. Such as: investing some of your 'permanent' savings into solid dividend paying shares. At least dividend payouts are again on the rise.
National Savings Interest Crisis
Part of the national savings interest crisis is due to the recent economic downturn which has led the UK into recession, and disproved Gordon Brown’s theory that it was possible to end the economic cycle of ‘boom and bust’.
Of course, in their efforts to minimise the damaging effects of the recession, and, in order to stimulate the economy, the Bank of England had to respond.
They - the Monetary Policy Committee of the Bank of England – have used one of the main instruments available to them; lowering UK base rate.
The UK base rate currently stands at 0.5%
This is the lowest level since the Bank of England was created some 300 years ago!
The current UK base rate has seen a sharp fall when compared to rates of two+ years ago. Back in March 2008, the base rate stood at 5.25%.
While subsequent UK base rate cuts have been greeted as good news, both for mortgage holders and the wider economy, the low interest is bad for those people who rely on their savings for an income, or are hoping to save for retirement.
According to the Bank of England, most high street instant access savings accounts (where most of Britain’s savers choose to keep their money), are now earning a variable rate of interest of less than 1% on balances.
Savers opinions matter!
I found this recent quote (abridged) in The Sunday Times about
'Savers abandoned' - particularly relevant with regards to the mood of our savers:
"Interest rates have been held down to allow state-owned banks
to repair their balance sheets and push up their share prices,
so that the government can get its money back as soon as
possible. It means that savers have seen their income
"Who at this election spoke up for savers?"
"Why is it that we must always look after the profligate in
society, at the expense of those who try
to look after themselves?”
Abridged version – Paul Rouse, The Sunday Times May 11th, 2010
What about Cash-Only ISA's interest rates?
When looking at interest rates on offer for a Cash-Only ISA the situation is not different.
While historically, Cash ISA interest rates were generally higher than on other savings accounts, this has now changed. Currently, apparently, the average Cash-Only ISA is paying less than 0.5 per cent.
Hardly an impressive rate of return on your hard earned post-tax money!
However, prudent early retirement investors can do much better than 1 per cent.
In an 'off the record' meeting, earlier in March, comments made by Bank of England Governor Mervyn King indicate that he also believes that interest rates in Britain will stay lower for longer than the markets expect to compensate for the fiscal pain ahead.
What to do if interest rates stay low for the next four years!
Instead of suffering dismal interest rates on your savings accounts, you may want to consider investing your 'longer-term' savings in high yield divided stocks instead.
Long Term Problems for Savers!
UK savers also face long-term problems, such as ongoing higher living costs, the risk of unemployment, and fewer people paying into personal pensions or planning for retirement.
Instead, they are using their money to just keeping themselves afloat. And, if possible, even paying off excessive debt. Curtailing spending and conserving cash.
This is good news as more and more people start to realise that they have to change their spending habits, and without realising, they are taking the first steps in building wealth and becoming an aspring early retirement investor!
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