The average household likely does not keep up with dull announcements from the Bank of England. But you may have heard that the Bank of England is likely going to cut interest rates to record lows of 0.25% within the next month. For financial planning purposes, this is something that you should remain wary of. It could well mean big things going forward.
Why is the Bank of England Cutting Interest Rates?
Before we go into what it could mean for you, we need to discuss why they are cutting interest rates in the first place. This is where basic economics comes in. Since there is fear regarding the British economy, the Bank of England has a duty to encourage growth.
Growth only happens when people spend money. What the Bank of England wants is for you to spend more money so the economy can keep moving. If they reduce interest rates, it stops people from saving their money. In extreme cases, they can even go into negative interest rates, which means you would be paying money for the banks to keep your money.
Do You Have a Mortgage?
Those who are paying down mortgages are going to see this as great news because it means the amount they pay in interest every month is going to go down. If you have a mortgage, this is going to save you hundreds of pounds every single year. You have already had it good since interest rates hit these record lows.
That is why so many people were worried about the interest rates rising before the Brexit vote. Even a single percentage point can translate into hundreds of more pounds paid every year.
Do You Need a Job?
When interest rates go into decline, it means that it is also cheaper for businesses to borrow. During times of low interest rates, they are more likely to borrow. When they borrow they need to fill in more jobs to complete the expansion. To complete the expansion, they need more people to do that.
Do not be surprised if people start to hire more talented professionals, should interest rates hold at these record lows. This may be the time to consider a career move.
Are You a Saver?
Unfortunately, savers are the ones who are going to suffer most because of this change. Inflation is currently held at 0.3%, whereas interest rates are slightly higher. It means your money is not becoming less valuable, but it is also not gaining much value.
With this change in interest rates, you can expect your money to decline in value every year. Inflation also has the potential to rise, so saving your money in a bank account could be the worst decision you can make for the financial future of your family.
So what do you do about it?
Your only option to counter this is to invest proactively. For the first time, many ordinary families across the UK are going to realise that they have no choice but to invest money, rather than allow it to sit. Now is the time to start learning about the investment options on offer to you.
If you want to protect your family’s money against low interest rates, you are going to have to beat those rates through looking into financial markets.
How Long Will These Interest Rates Last?
For the foreseeable future, according to most financial experts. They agree that this is not going to change anytime soon because, like most Western economies, Britain has a chronic need for growth. The only way they are going to encourage growth is through lowering interest rates.
For some families, this is the best thing that could happen to them. Buying a house and paying off a mortgage has never been more affordable, but for others, this is one of the worst things that could happen to them.