Negative interest rates: Accounts ‘could go down this path’ as NS&I cut rates – get ready

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Negative rates could be a distinct possibility in the near future as the Bank of England has detailed that they may utilise them if the economic conditions warrant such a move. Recently, Martin Lewis warned that NS&I lowering their rates could be “foreshadowing negative interest rates” and others have also commented on this.

On NS&I’s savings decision, which will affect millions of savers across the UK, Rachel Springall, a financial expert at Moneyfacts, had the following to say: “The cuts from NS&I in November could well test customer loyalty, particularly if they have a large pot and are relying on the return of interest as a form of income.

“Whilst this is disappointing news for savers who are already struggling to earn a decent return on their hard-earned cash, it was almost an inevitable move to see NS&I make some cuts as a government backed brand to manage the flow of deposits.

“We have seen rate adjustments on these accounts in the past and it will be over six months once these cuts are made that NS&I made a U-turn in its planned rate cuts in May.

“This was a positive move to support savers during the Coronavirus pandemic, but fundamentally raising more deposits could aid the economic crisis by providing more spending money to the Government.”

“In the weeks to come it will be interesting to see how long providers can sustain any lucrative offers, as we have seen a very short shelf life on deals that sit highly in the top rate tables. (Skipton BS for example).

“Moving forward we might not see much of a gap between the top rate deals, but it is vital savers continue to shop around, particularly if they have an easy access account with a high-street bank as they could be earning next to nothing.”

Rachel went on to comment on the possibility of negative rates emerging: “Savers in the UK are able to safely deposit their cash into flexible accounts without cost right now, but this doesn’t mean that we couldn’t see holding accounts that charge in the future, if we were indeed to move into the territory of negative interest rates.

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“It’s a model that would confuse your ordinary saver of course, but some savings accounts could go down this path – similar to how some banks charge a fee on a current account.

“If service or holding charges come into the savings market, then these will need to be considered by savers carefully and charges should ideally be monitored by an independent body.”

Interest rates are generally affected by the decisions that the Bank of England make and recently, the central bank decided to keep the base rate unchanged.

However, it was acknowledged that negative rates remain in the “toolbox”.

As recent minutes from the latest base rate decision confirmed: “The Committee had discussed its policy toolkit, and the effectiveness of negative policy rates in particular, in the August Monetary Policy Report, in light of the decline in global equilibrium interest rates over a number of years.

“Subsequently, the MPC had been briefed on the Bank of England’s plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates.

“The Bank of England and the Prudential Regulation Authority will begin structured engagement on the operational considerations in 2020 Q4.”

The next decision on the Bank of England base rate will be made on November 5.

The Bank of England also has a current inflation target rate of two percent, with the actual rate currently sitting at around 0.2 percent.

Additionally, Quantitative Easing sums have reached £745billion.

Insight into how all of these fiscal and economic factors can impact pensions, mortgages and savings can be sought from the likes of the Money Advice Service and the Money and Pensions Service who can provide impartial guidance on financial matters.

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