And Regular Account Balances
Whilst a further cut in interest rates this month means that mortgages could be even cheaper than they are already, on the flip side, it isn’t such good news for those with money in the bank, who are already receiving rock bottom returns on their investments. What could it mean if interest rates are cut again, to zero, or below?
A cut to 0.25% – 1 notch away from zero
The Monetary Policy Committee (MPC) decided, at the start of the month, to cut interest rates to 0.25%.
One more decision like this will mean that the UK base rate of interest falls to zero percent.
What effect would this have on your savings balances, if this came to fruition?
Paying to lodge money in the bank
Effectively, if rates of interest fall below zero and you are a customer with savings, or even just money in a regular bank account, you could end up paying an “interest” charge each month simply to lodge money in your bank.
That is, if your bank decides to pass on the interest rate cuts to it’s customers.
What is considered more likely though, is that banks will not pass on rate cuts below zero to their personal account customers, but could instead increase their monthly account fee, to counter balance their own costs.
This latter approach may not deter customers from using their savings account as much, although the end result could still be more costs for the customer.
Banks are more likely to pass on negative interest rates to their business account customers.
What are the options for savers?
If rates continue to fall, savers may choose to remove their money from their bank, keeping it at home, or looking for another safe-haven, or a new investment.
This of course, directly counters the objective of reducing interest rates, which is to keep borrowing costs low and retain money circulating through the market to attack the effects of inflation.
The graph below by Highcharts.com shows that in recent months there have been significantly more rate cuts by banks than there have been rate rises.
According to MoneyFacts there have been 1,250 rate cuts, compared with just 232 increases.
There are other options though to make your money go further. Taking professional investment advice can help to highlight the opportunities available to you.