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Low interest rates: what’s the future for savers?

October 18, 2016 11:02 am Published by

We have historically low interest rates. The Bank of England halved its base rate in August and by the end of the year, it could be lower still.

But not only did the Bank cut interest rates, it also announced more quantitative easing (QE – the buying of government and corporate bonds) and new low rate loans of up to £100bn to banks and building societies to encourage lending.

The Bank also said “if the incoming data proves broadly consistent with the August Inflation Report forecast, a majority of members expect to support a further cut in Bank Rate … during the course of the year”. Fortunately, the Governor of the Bank of England, Mark Carney, has made clear he does not favour negative interest rates, but another cut will take him very close to what used to be called the ‘zero bound’.

Low interest rates – how do they affect investors and savers?

Savings rates have been dropping for some time, but this has not stopped deposit-taking institutions from cutting further, in some cases by more than the 0.25% reduction made by the Bank of England. One of the most attractive interest-paying current accounts has announced a 1.5% reduction in interest payable.

The extra £70bn of QE has pushed down government bond yields: lend money to the government for a decade and you’ll be paid only less than 0.7% a year. Once again this has pushed down annuity rates and exacerbated the problems of funding final salary pension schemes. Lower interest rates also drove down the value of the pound, which could ultimately mean higher inflation.
For investors, as opposed to depositors, the Bank’s moves were beneficial, giving a lift to the value of UK shares and bonds, and, by dint of sterling’s fall, foreign assets.

So is it all doom and gloom for savers?

Well, no. Despite the rate cut and its aftermath, there are still opportunities to invest for income, although it does make the need for expert advice all the more important. We’re very proud that at Hartsfield, the five portfolios we manage, and which have been running for some five years, consistently out-perform their peers as well as their benchmarks.

How do we achieve this? We assess our performance through our in-house investment committee chaired by our MD and comprising our investment analysts and senior financial planners. We review in detail how each portfolio is performing, drill down into extensive data and reports on the asset allocation and the individual funds and, where necessary, agree on any changes which need to be made.

Investing for income in the face of low interest rates is a challenge, but it can be done. To talk about savings and investment, please get in touch with the team at Hartsfield.

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This post was written by Melanie Dolphin

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