Rates at record lows
As savers in the UK are no doubt aware, the interest they earn on deposits has been at a record low for some time. The “base rate” (the rate at which the Bank of England lends to commercial banks such as Lloyds) has been stuck at 0.5% for seven years.
Rates have been set this low to make it cheaper for commercial banks to borrow money in the hope that they will lend more to businesses and consumers, thus encouraging them to spend more. This is intended to increase the amount of money circulating in the economy and, thereby, boost growth.
You might think that the lowest interest rate a central bank could set would be zero, but recently several central banks, including the European Central Bank (ECB) and the Bank of Japan (BoJ), have introduced negative interest rates.
Implementing negative interest rates can lead to private individuals having to pay for the privilege of leaving their money with a bank. Fortunately, this hasn’t happened yet. Even though negative rates have affected commercial banks depositing funds with their respective central banks, those costs have not yet been passed on to savers depositing money with their local high street bank.
The effectiveness of negative rates is still being debated and investor reaction has been mixed.
Three main concerns
However, there are also reasons to take a positive view on negative rates.
Central bankers are not out of options
It remains to be seen how successful or otherwise negative interest rates will be in addressing the challenges faced by the global economy. But, for the time being, we believe that zero or negative interest rates are here to stay.
Forecasts of future performance are not a reliable guide to actual results in the future, neither is past performance a reliable guide to future performance. The value of investments, and the income from them, may fall as well as rise and cannot be guaranteed. Any views expressed are our in-house views at May 2016. Investment markets and conditions can change rapidly and the views expressed should not be taken as statements of fact nor relied upon when making investment decisions. This information may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.
For access to advice from a Private Banking and Advice Manager, you’ll need at least £250,000 in savings, investments and/or personal pensions and/or a sole annual income of at least £250,000.
Find out more about eligibility and fees
Get in touch with one of our Private Banking and Advice Managers.
No charges for the initial meeting to discuss your individual circumstances and objectives.
No obligation to take any of our services or products.
Before any services or products are provided to you we will explain what advice we can give and what products and services this covers, and any advice or product charges that apply and agree these with you.
You can call us to arrange an appointment or ask a question.
Lines are open Monday to Friday from 09:00 to 17:00 (Tuesday and Thursday until 19:00) and Saturday from 09:00 to 13:00. Excluding Bank Holidays. Call cost may vary depending on your service provider.