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LIVING WITH EVEN LOWER INTEREST RATES

It is highly expected that the Bank of England will lower its Base Rate, if not this week then any time soon. The prediction is from the current 0.5% to 0.25%, but of course is could be a little less to say 0.35% or 0.40%, or a little more to say 0.20%.

The reason given will be to stimulate the economy in the anticipated slowdown, This will result in many things happening.

With the lowering of the BOE Base Rate, then commercial banks will lower their interest rates on deposits, which will make the pound sterling less attractive internationally as a currency. This could have the effect of pushing the exchange rate even lower, which would make our exports, including property, more attractive to international buyers. 

The overall effect would be to get the economy growing faster, and make the UK more attractive with which to do business. 

This anticipated drop in interest rates, means that mortgages could be cheaper. This could be extremely helpful to those people on high interest rate packages, and those with high interest rate packages on their buy to let mortgages. But more on this in our mortgage section. 

Unfortunately, the flip side is for those people with large deposits in banks, it will mean lower interest rates on their deposits and lower income in the future, and maybe a good time to start looking elsewhere for better income or growth on their deposit money. 

A good alternative to a bank deposit to give a better interest rate or growth on money is in the UK and international Bond markets. 

To obtain a better interest rate than the very low rates of the banks, investors will need to accept a little risk, on their investment. But providing that this risk is managed, or safeguards are put in place, then this added small risk can become acceptable over the longer term. Bonds are issued by governments and large corporations and are generally accepted as lower risk than shares. 

The annual return on the average Gilt Fund over the past 5 years has been 7.5%. With our selection of the best performing funds, this performance could be improved for a low risk investment.