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As Interest Rates Fall, Savers Get Raw Deals Again!

The Bank of England’s decision to cut interest rates to 1½ percent today is the lowest interest rate in the Banks’ 314-year history since its founding in 1694. Another reason for the Bank of England’s base rate decline is inflation concerns, the cost of imports as the pound is too weak in international markets; They are worried that savers will be harmed and they want to prevent this recession from turning into a complete depression. Banks have a balancing act of getting enough money in, keeping savers happy, and keeping mortgage borrowers paying off their mortgages.

The reason for this financial turmoil started with the credit crunch.

A credit crunch occurs when there is not enough credit or money. The Bank of England lowered interest rates to encourage bank lending and to make borrowing more affordable. This hasn’t helped the lack of money supply because there isn’t enough money to get started yet, and people looking to borrow money for a house or invest in a business still won’t be able to find the money to borrow. If there isn’t enough money, it doesn’t matter how low the interest rates are.

When will the Bank of England come to its senses and realize that if it lowers the base rate any further, it will punish those who save in all banks, building societies and mutual funds. It is believed that in the UK there are more savers than borrowers. If we are going to fight to get out of this recession then we will need to reward the Savers with fair interest rates. If we are planning to come out of this recession, we need to understand the importance of savings.

Who are the winners and losers of today’s rate cut?

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Unfortunately, there are more losers than winners. Retirees who rely on interest from their savings to boost their often inadequate pensions will see their savings come in even smaller today. Today, there are more than 80 savings accounts that pay less than ½ percent per year. It is estimated that 38% of current savings accounts pay 1% or less annually, and more than three-quarters of savers have given full rate discounts to savers, as the Bank of England announced.

If the interest rates charged by banks and building societies were reduced to 0%, you could find savers paying banks and building societies for the privilege of looking after their savings, this has happened in the past. Tips for saving You need to shop for the best interest rates and make sure you save up to £50,000 in each savings account to be protected by the government should the bank go bankrupt. Life is more difficult for savers who want to save rather than spend. Savers have invested about £1 trillion and borrowers are responsible for around £1.5 billion and there are now more savers than borrowers.

Not all Mortgage borrowers will benefit from today’s decline in the Bank of England’s base rate. In general, homeowners with mortgages on a mortgage have done very well with recent declines in the basic rate. But they are now finding that some mortgage lenders are not willing to accept floor rate cuts. The devil appears in the details of mortgage contracts because some lenders have a leash clause that means they won’t drop their mortgages below 2% no matter how much the interest rate drops. Nationwide said they would not cut further interest rates.

Mortgage borrowers on fixed rate mortgage agreements will not see any change in their monthly mortgage payments. Some mortgage providers have said they won’t offer any discounts to their standard variable rate borrowers at the base rate. Other lenders have said they will transfer some of the discount. Nationwide, HSBC and Lloyds TSB have said they will pass a portion of the standard variable rate (SVR) discount to their borrowers.

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