UK Bank Rate cut to 0.5%

Today the Bank of England cut the bank rate (commonly known as the interest rate) to 0.5%, the lowest value ever recorded. They also plan to inject more money in to the system to try and get the economy going again. The governor said this policy would “eventually work”.

Now I get the reasons behind this. The economy worldwide is in a bad state at the moment and governments are forced to make tough choices to try and rectify things. But I’m selfish, and all I see is that the interest on my savings will be reduced yet again.

I’m in the position of many people these days. House prices were soaring and getting that first step on to the housing ladder was hard. So, we took the decision to rent instead of buy and to save our money for a future house deposit. This worked well when rates were high; we had no expensive mortgage to pay and our savings were working hard for us (although, inflation meant that looked better than it really was).

But now after numerous rate cuts we’re seeing no benefit, we’re just seeing our monthly interest payments dwindle. Looking back 12 months I think we were earning roughly 3 times what we are now. That’s a huge drop! Fortunately we don’t depend on the interest to live, but I feel sorry for those that do.

This has led me, and many others, to start searching for better ways to invest our money. For short to medium term maybe corporate or government bonds are a good choice? Whilst equities are likely still the best long term choice. Maybe Zopa is good for medium term as well. But these all bring risk, and now probably isn’t the time to gamble with your savings (at least not all of it).

Next month brings the start of the next tax year. We’re already starting to see some attractive cash ISA deals, so come April I’ll be hunting out the best deals for our money – I’ll be sure to post the results!

So where does this leave rates now? Hopefully this will be the lowest they can go. Is it actually possible they’ll drop to 0.25% or even 0%? Will banks start charging savers rather than paying interest? Time will tell…

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