Time to take an urgent look at your savings
WOULD you like to make some extra interest on your savings?
Of course. Who wouldn't. After all, the best thing about money is that if it's not under the mattress, it generates more money! So it's always a great idea to do an annual review of your savings.
But recent events have made it more urgent than ever.
Last week, the Bank of England announced that for the first time in nearly a decade, interest rates were to rise above 0.5 per cent.
On Thursday August 2, Bank of England boss Mark Carney (the Guv'nor) announced that interest rates were rising to 0.75 per cent, ending nearly ten years of a record low.
What a great ten years if you were one of the 35 per cent of home owners on variable rate mortgages! With the Bank of England base rate on its belly at 0.5 per cent, your mortgage was cheaper than ever.
And just when I and lesser financial experts thought rates could only go up from there, they were cut even further, to 0.25 per cent for a while from August 2016. Variable rate mortgage holders partied for a week, and we financial experts shut up for a while.
Savers, on the other hand, cried red tears of sorrow, as low interest rates slashed their return on money in the bank.
Bit of background: the Monetary Policy Committee at the Bank of England is tasked to hold inflation to 2 per cent or less, and raising interest rates is their way of cutting consumer spending and putting a brake on the economy. If you're paying more for your home, you have less to spend on other things. You can't spend the same tenner twice... who am I telling?
Estimates indicate that if you had a tracker mortgage for £100,000 at the moment, the latest interest rate rise would add about £10 a month to your repayments.
For families then, the last few years have been a classic case of swings and roundabouts - winning on the one side, losing out on the other.
The Guv'nor went on to say that the next change is likely to be another increase. If there's any ‘good' news coming out of this, it is that the tone of his statement indicated that the next increase is unlikely to happen before 2019 at the earliest.
Well, this kind of change can mean uncertainty for families with regard to the immediate future, so it might be a good time to look at how we, as families, are doing on the money front.
This is where our friends at Aviva come in, with their annual Family Finances Report.
Over 2,000 people aged 18–55 were interviewed to produce the report's latest findings for 2018.
They are telling us that monthly family income has fallen 3 per cent over the past year.
It now stands at £2,084, down from £2,151 a year ago.
On the other hand, those low interest rates I mentioned have not dampened enthusiasm for putting a few bob aside for a rainy day. The typical amount held in savings & investments rose by 12 per cent in 2017, up from £3,114 in winter 2016/17 to £3,494.
But with all the uncertainty and pressure on the pound as the UK coasts towards Brexit, the cost of living is going up, and fears over future price hikes in basic necessities are a main concern for 43 per cent of families.
Most households are tightening their belts – we were spending £15 less on our weekly food shop at the start of this year, as compared to previous figures for summer 2016.
And while a rise in interest rates should mean a rise in the interest in savings accounts, the banks have not passed this on to savers so far.
This has led to many market commentators telling us that, rather than wait for better savings rates from our bank, the way to get our money working harder right now is to ‘ditch our loyalty' and, with the help of our financial adviser of course, shop around for a better account or Isa rate.
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005 . Further information is available on the Facebook page 'Kennedy Independent Financial Advice Ltd' or on the website www.mkennedyfinancial.com