Make your savings work harder

The cut in Bank of England Base Rate to an historic low of just 0.1% in March in the wake of coronavirus epidemic was designed to support an economy plunged into an unprecedented crisis.

It is good news for borrowers, from home buyers to businesses – but what does this mean for savers?

At Continuum we look at the impact – and at what can be done to help.

Money is cheap – and could stay that way

The cut in interest rates is an attempt to bolster an economy impacted by a coronavirus led recession. It means that rates are effectively negative – any interest earned is likely to be eaten up by inflation. Savings will cost you money in real terms, because the buying power of your cash is steadily whittled away.

Low rates should prompt businesses to borrow to invest, which should stimulate the economy, which is in everyone’s interest, and a short term dip in the interest savings earn might be part of the cost we all have to pay to get the country back on its feet.

But there are signs that it might not be a short-term dip. The Bank of England has suggested that base rate could remain close to historically low levels over the next few years. The Monetary Policy Committee, responsible for setting the rate has forecast that it could stay at 0.1% for a year, then increase to just 0.2% by 2022 and rise only a little over the next three years.

There are even speculations about a negative Bank of England base rate. This means that the bank would actually charge depositors and pay those who borrow. It is unlikely to be passed on to individuals – but interest rates staying close to historic lows will be a problem for savers already struggling with savings accounts offering falling rates.

Even though inflation fell in March to 1.5%, the low bank rate means that few savings accounts can get anywhere near it – which means your money loses its value.

Rates are being cut

Few savings accounts were beating inflation when the figures were announced in April, and since the base rate was slashed from 0.75% to 0.1% in March the returns offered on rates on hundreds of savings accounts have been cut. Some banks have slashed interest rates to as low as 0.01%.

Banks are always quick to pass on base rate cuts to savers, even though now there is very little left to cut.

Shopping around for the best interest rate on offer could still improve your position a little. Some newcomers may offer higher rates for short-term introductory periods – but banks are awash with cash and don’t need to attract more deposits. The basic message is that your savings can no longer be relied on to grow or even to provide much of an income for you.

What can you do?

If you depend on income from your savings – or simply want your money to work harder and to grow, you need to get expert help without delay.

At Continuum, we can work with you to find the best homes for your savings, but we can also help you start looking at investments.

Like saving, investments are a way of storing and growing wealth. But there is an important difference. With savings, your money stays as cash. With investment, it is used to buy something – which could be something physical, like a buy-to-let property or an investment vehicle such as shares in a business, or in a fund which will invest in shares on your behalf.

Investments are unlike savings in that returns are not limited by interest rates – which means that your money could possibly start generating the return you need again.

Investments can potentially grow your wealth, offer exciting returns and help you reach your financial goals a great deal quicker. Of course, there is a downside. Unlike cash savings which are secure, investments carry risks. They can fall as well as rise in value and you may not get back the amount originally invested. Savings and investments have the security of the government’s FSCS (Financial Services Compensation Scheme), which should make sure you don’t lose your savings or investments up to the current FSCS limits, if a bank or other savings or investment provider fails.

Managing this risk is the key to successful investing. At Continuum we help many hundreds of savers become investors with investment products like ISAs. We can help you keep risks under control and create the investment portfolio you need.

With our help, investment does not have to be difficult. It certainly could be more rewarding than savings in the current climate – so find out more about what we can do for you now.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.

The Financial conduct authority does not regulate deposit accounts.

Your home or property may be repossessed if you do not keep up repayments on your mortgage

The value of property investments and income from them can go down as well as up and investors may not get back the amount originally invested.