Tuesday, 26 February 2013

Negative Interest Rates?

The Bank of England is considering changing its base interest rate of 0.5% to a negative figure. The idea is effectively a fee on commercial banks leaving money sat in the central bank, and should persuade them to lend more money to stimulate economic growth.

People looking for a decent mortgage rate are in luck (rates could be lowered even more), but on the other hand savers will take yet another hit to the amount of interest they can earn. It doesn't mean that savers will actually be charged interest, but with interest rates so low already inflation is taking big chunks out of their hard-earned cash.

I guess anything that stimulates the economy has to be a good thing, but I worry about the impact this could have on banks (for our sakes, not theirs!). If they start to feel the pressure too much, they might pass on an even bigger hit to their customers. I for one don't want to see current account fees or even lower interest rates for savings! Don't forget, banks are out to make money, and if they can't make it in interest they'll make it from us!

The jury's out on whether or not negative interest rates will actually be brought in. What do you think about this? Will you benefit from cheaper loans (mortgage refinancing, for example), or will your savings suffer instead?


Robyn said...

One of the seriously worrying things about interest rates being as low as they are is how many people are now simply used to their mortgage repayments being at a falsely low level - as and when things come to rise again (as they will, eventually) these people are going to have the most almighty problems meeting the new, higher payments. Had they left the repayments the same, regardless of the falling interest rate, they would have built up a nice little overpayment cushion by now of course, and actually reduced the amount they will be paying back over time quite dramatically!

cumbrian said...

The banks will never lose money, their directors obscene salaries and bonuses are safe, they'll just run to the government to bail them out. Again.

Kearnygirl said...

I feel trapped with my savings in a bank that gives me less than 1% interest but am afraid to invest otherwise. Have lost in the past money in the stock market and can't afford to do that again. Yet, I am so dissatisfied with the current rates that it can't get much worse! Will have to think harder and do some research on other ways to invest. Yes, the banks will never lose money. They have backups from the government so it won't happen.

cumbrian said...

Yes Kearnygirl, there's not many decent savings or investments.

Have you thought about gold?

Or Peer to Peer lending?

Premium Bonds?
Safe money and a chance to win something.