The Falling Interest Rate
Every time the Bank of England has cut interest rates in attempts to deal with the credit crisis much has been made about passing these cuts onto tracker mortgages across the country. Should we, however, be expecting our bank accounts to mirror these drops as well? And is there even the possibility that the interest rate on savings accounts could go into negative figures?
Whilst it might sound a little strange, negative savings rates aren’t entirely without precedent. In the 1970s Swiss Banks charged foreign customers for holding their money, rather than paying them an interest rate. Economists suggest that no matter what happens to the interest rate, the worst rates we will see will be zero percent.
Recent bank rate cutes have left the interest paid to saver so low that if further cuts happen the interest rate on current accounts cannot fall any lower without going negative. On the other hand if the Bank of England interest rate continues to drop, banks may have to offer interest rates above the BoE base rate, and this could cost the banks money that they don’t have.
Reports suggest that out of a selection of 256 instant access savings accounts, 76 already pay less than 0.5% and 117 pay less than 1%. That leaves 63 accounts paying more than 1% interest and if there is a further bank rate cut – as is anticipated – that number will almost certainly decrease.
Some experts have suggested that the interest rate is not of particularly great importance to customers at the moment, rather ensuring the safety of the money in their bank account is of priority. That means that some banks may decide to move to zero percent interest rates, but probably won’t drop into negative rates due to the psychological impact of such a move.
Of course, it should be pointed out, that even if a bank does collapse, unless you have more than £50,000 in your account your savings will be safe. From that point of view if you’re looking to open a bank account you may as well search for one with a positive interest rate, no matter how low that may be. Alliance & Leicester are one bank who has been offering good rates throughout the credit crunch, and if you’re considering moving your money, then A&L might be a good place to move it to.
Think carefully before securing other debts against your home, your home may be repossessed if you do not keep up repayments on your mortgage.
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