Savers Get a Raw Deal Again as Interest Rates Plummet! By Mark Aucamp At Isnare.com Ezine Articles

The Bank of England decision today to drop interest rates to 1½ % is the lowest interest rate in the Banks 314 year history, since it was established in 1694. The Banks of England’s reason for another drop in the base rate is their concern about inflation, the costs of imports as sterling is very weak on the international markets; they are worried about the damage to savers and they want to prevent this recession turning into a full blown depression. Banks have a balancing act of getting enough money in, keeping savers happy and keep the mortgage borrowers paying their mortgages.

The cause of this financial turmoil started with the credit crunch

A credit crunch occurs when there is not enough credit or money available. The Bank of England has reduced interest rates to try and encourage lending by the bank and to make borrowing more affordable. This has not helped the lack of money supply as there is still not enough money around to start with and people looking to borrow money for a home or to invest in a business will still not find the money they need to borrow. It does not matter how low interest rate are if there is not enough money available.

When will the Bank of England reach their senses and realise that if they reduce the base rate any further then they will penalise the very people who save money with all the banks, building societies and investment fund. It is believed that there are more savers then borrowers in the United Kingdom. If we are to fight our way out of this recession then we will need to reward the Savers with fair interest rates. We need to recognise the importance of savings if we plan on climbing out of this recession.

Who are the winners and losers from today’s interest rate reduction?

Unfortunately there are more losers than winners. Pensioners who rely on the interest from their savings to boost their often inadequate pensions will have seen their income from savings decimated further today. Today there are more than 80 saving accounts that are paying less than ½% per annum. It is estimated that 38% of current saving accounts are paying 1% per annum or less and more than three quarters of saving providers announced that they are providing savers with the full rate cut as they are announced by the Bank of England

If the interest rates charged by the banks and building societies were to drop to 0% you could find savers paying the banks and building societies for the privilege of them looking after their savings, this has happened in the past. Advice to saver you need to shop around for the best interest rates and make sure that you save no more than £50,000 in each savings account so that you are protected by the government should the bank fail. Life is more difficult for savers who want to save rather than spend. Savers have invested around a £1 trillion and borrowers are responsible for around £1.5 billion and there are more savers then borrowers currently.

Not all Mortgage borrowers will benefit from the drop in the Bank of England’s base rate today. In general homeowners with their mortgage on a tracker rate mortgage have done very well with the recent drops in the base rate. But they are now finding that some of the mortgage lenders are not willing to pass on the base rate cuts. The devil appears in the detail of their mortgage contract as some lenders have a collar clause which means that they will not drop their mortgage below say 2% irrespective of how low the interest rate goes. The Nationwide has said that they will not be passing on any more interest rate cuts.

Mortgage borrowers on fixed rate mortgage deals will see no change in their monthly mortgage payments. Some mortgage providers have said that they will not be passing on any reductions in the base rate to their borrowers that are on their standard variable rates. Other lenders have said they will pass on some of the reduction. Nationwide, HSBC and Lloyds TSB have said that they will pass on some of the reduction to their borrowers on their standard variable rate (SVR).

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