Interest rates UK: Savings warning as Britons fear their money isn’t safe in the bank
Martin Lewis shares his prediction for interest rates
The Bank of England’s Monetary Policy Committee (MPC) last week voted to maintain the Bank Rate at 0.1 percent. The central bank’s Base Rate hit this record low for the first time in March 2020 in response to the coronavirus pandemic, and it has since been held at this level.
Since then, there has been speculation that interest rates could turn negative.
Last week, the MPC confirmed it was telling banks to prepare over the next six months for negative interest rates, but reiterated it shouldn’t signal that this is the intention for the future.
In the Monetary Policy Summary and minutes of the meeting, it stated: “While the Committee was clear that it did not wish to send any signal that it intended to set a negative Bank Rate at some point in the future, on balance, it concluded overall that it would be appropriate to start the preparations to provide the capability to do so if necessary in the future.
“The MPC therefore agreed to request that the PRA should engage with PRA-regulated firms to ensure they commence preparations in order to be ready to implement a negative Bank Rate at any point after six months.”
New research published this week has surveyed more than 2,000 UK adults in order to understand how they plan to manage their finances in 2021, in light of COVID-19, Brexit and the threat of negative interest rates.
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The survey, carried out by Opinium for personal finance platform NerdWallet, found almost a fifth (18 percent) of respondents do not think their savings are secure in a bank.
The research found, on average, UK adults have £15,175 in savings.
Furthermore, 38 percent have said they started saving less since interest rates were cut to 0.1 percent nearly 11 months ago.
The historically low Base Rate also prompted 23 percent of people to spend more of their savings, according to the survey.
Almost half (47 percent) of respondents said they are planning to withdraw either part or all of their money from savings accounts should negative interest rates be introduced.
The study also found that throughout 2020, 52 percent of UK adults have been actively searching the market to find a savings account that offers a better interest rate than their existing one.
John Ellmore, UK director of NerdWallet, commented on the study, and shared a savings warning.
He said: “2020 was the most economically turbulent year in recent memory, with Brexit uncertainty, COVID-19 and record-low interest rates all placing substantial strain on people’s finances.
“It is therefore unsurprising that so many UK adults are feeling anxious about the value of their savings.
“In the current climate, and with more economic volatility inevitable in 2021, it is understandable that people may be worried about the value of their savings – but they must not rush into rash decisions.
“Instead, savers should take their time to explore the various options available to them.
“From savings accounts offering relatively generous interest rates, to alternative savings options such as ISAs and pension schemes, there are products to suit every individual – it is just a question of conducting thorough research and seeking advice where necessary.”
Speaking to Express.co.uk, Mr Ellmore explored what the uncertainty could mean for the future of traditional savings accounts.
“The uncertainty caused by COVID-19 has created an unsettling climate for savers,” he said. “After all, the initial onset of the pandemic saw the Bank of England drop interest rates to historic lows of 0.1 percent.
“What’s more, there is ongoing speculation that rates could fall into negative territory and below zero, offering little comfort to savers.
“Perhaps unsurprisingly almost half (47 percent) of UK savers plan to withdraw some or all of their money from their savings account if negative interest rates are introduced, according to recent research from NerdWallet.
“Optimistically however, we are seeing a growing trend of savers taking matters into their own hands and seeking out more effective ways to make their money work harder.
“Indeed, NerdWallet’s survey also found that since the beginning of 2020, the majority (52 percent) of savers have begun to search the market for savings accounts that offer more generous interest rates than their current one.
“Many savers are also keen to investigate alternatives to traditional savings methods.
“For example, over a third (36 percent) are considering investing some of their savings in stocks and shares whilst 47 percent are open to the prospect of bonds or ISAs. What’s more, over a quarter (29 percent) plan to save more money into a pension scheme rather than traditional savings accounts in 2021.
“So, does this mean traditional savings accounts will fade into obscurity? I doubt it – after all, an overwhelming majority (72 percent) still believe that it is sensible to keep some money in a savings account even in the current climate.
“However, I anticipate that savers will become more proactive in finding ways to make their money go further.
“This might involve searching the market to find a better rates.
“We could also see a rise in diverse savings strategies, placing some money in a traditional savings account, whilst simultaneously investing the rest in stocks and shares, or an ISA.
“There is no one-size-fits-all strategy when it comes to savings. Indeed, the approach many will take will be dependent on numerous factors, such as their risk appetite.
“However, through thorough research and careful consideration, I am confident that Britons will be able to make their money work harder, in spite of the current economic uncertainty.”
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