Interest Rate Cut

[Parthiban]

I'm not sure if it was the best plan to slash so much off the base rate in one go, as there probably isn't any more they can take off in future to boost morale...........

Either way, to the normal person, it's great news as we get all our savings up front! For me, if all goes to plan it should mean a saving of about £300 a month (which is fantastic )

The obvious downside is that there's no point in saving anymore, so it's just going to promote more spending!

Anyone else going to make any great savings? :)

[dave1]

Most of my savings are in fairly short term (2-3 year) accounts split between 4 banks at around 5.5% net. I committed to these around the time of the recent banking fiasco as I felt that rates had to come down to try to kickstart our economy.

Everyone, including savers, will profit if the latest interest rate reductions have the desired impact on the economy as a whole. Most of the people I know seem to equate interest rates solely with their mortgage repayments/savings rather than with the cost of living in general.

[Mike_B]

That's because the effect on savings rates and mortgages is instant, whereas the BoE base rate has only a slow impact on the wider economy. Wholesale money for the loans market is still a lot more expensive than 3% anyway.

[Scarlet Pimpernell]

The biggest problem is that your savings get hit first, then the mortgage rates drop as and when the banks feel like it. Every day that the gap between base rate and mortgage rate remains high = £00000's profit for these banks who are against the ropes. Look at what it has taken to get the mortgage rates to start dropping, several days after the base rate cut.

The bad news is that £ is slumping, which can only be good for exports really, but people will start moving money from banks and into other commodities - oil, Gold, Gems etc., and business's get some reprieve from interest on Busines loans. The outlook is bleak...

Now is also a good time to see if you can get one of them Flexible "one account" type mortgages. People with those are the winners...assuming they have some savings!

Also, what has been costing everyone is the cost of fuel. Evrything has to be transported or moved logistically at some point, and as the cost of fuels has gone up, food, cars, shipping, rail, air etc - everything goes up. Someones gotta pay, and it's us who work for a living!!

[Parthiban]

Not necessarily, depends on the terms of your mortgage - the cut kicks in on my mortgage from next month :winky:

But yes, this is definitely more of a "let's grab headlines" decision than a proper financial decision.

[Ian D]

The impact is pretty complex, as there are all sorts of factors involved, and varies with time. Any bets on what inflation is going to do?

The BoE base rate isn't the rate that affects mortgages. There are loads of different rates that reflect the cost of borrowing by mortgage lenders. The BoE rate does have an effect, but, most certainly, lowering it by 1.5% doesn't lower the banks' costs of borrowing by 1.5%.

Of course, what's good for borrowers is bad for savers, such as pensioners using savings interest to supplement their pensions.

Wasn't it cheap lending that got us into this mess in the first place?

For me, I'm being shafted on my savings (I have no mortgage as I saw house price falls coming) and my service pension that is fixed (so that inflation screws it). Inflation is going to shoot up, so I'm going to lose out even more in the future...........

On a last note, don't be fooled by some of the c**p you hear. For example, the idea that the banks are being bailed out is a bit of a laugh. Gordon Broone is lending the banks money and gets 12% tax-free whilst borrowing at 4-5% from pension funds and the likes. I'll have some of that!

Ian

ps I work in the insurance industry helping manage funds numbering in the billions, so do speak with some idea

pps there's only one solution, emigrate, but not to the US, Europe or Russia!

[Steviewevie]

Wasn't it cheap lending that got us into this mess in the first place?

Not just that, it was cheap lending and lending people way more than they could reasonably afford to pay back.