Savings: What should I do if Interest Rates drop?

Hello everyone! Just a quick bonus post as there’s been a few news articles floating round that suggests the Bank of England may look to lower interest rates. So what does this actually mean for your savings, and what should you do about it?

The interest rate is essentially a marker of the cost of short term borrowing between financial institutions. Whilst each bank ultimately controls the rates they lend at, the central bank rate acts as a marker for their own adjustment.

Obviously this may not happen in reality and the Bank could surprise by keeping rates as they are. However the general tone suggests it’s reasonably likely and there’s some sensible actions we can take.

For Savers: Switch/Lock in a rate immediately:

This is unfortunately likely to be bad news for savings accounts, as the interest rate paid on your account is indirectly linked to the central rate.

So if you want to make the most of your bank savings, NOW is the time to switch to take advantage of beneficial introductory saver rates before they reduce further. You can read a bit more about what to look for when switching bank accounts in my post on the subject here.

Thinking of a Mortgage? Wait and see:

If you’re looking to take out a fixed mortgage and have the flexibility to do so, it may be worth holding off you application until the banks adjust their rates. You can expect a slightly lower interest rate on said mortgage which over a longer term really adds up. If you’d prefer a flexible mortgage this is less applicable, but rates still may move down slightly.

For other loans from a bank – same:

Ditto on any kind of personal or business loan which is coming from a bank – wait and see if you can.

When should I expect rates to change?

The actual decision being made by the Bank of England won’t happen until 30th January. There previously used to be a bit of a time lag between interest rate adjustments and the banks actually changing the rates on their products. Whilst you get a couple of days in some cases, others have become close to instantaneous as technology allows quick changes more easily. Banks may also start adjusting rates in advance in anticipation of a movement in rates.

And finally…

Finally a few personal updates on the blog! Starting any project like this is going to take some time to grow, but I’ve been gratified and pleasantly surprised to see traffic incoming (approaching 1,000 views) so thank you!

One area I’m still looking to develop further is Facebook engagement – if you like the content here, it would be hugely helpful to give the blog a like.

Finally a big thank you to the guys at Feedspot who have included us in their Top 25 UK Personal Finance Blogs – exciting and appreciated!

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