On Thursday 4 August 2016, the Bank of England reduced base rate to a new historic low of 0.25% - as a result of the Brexit slowdown - which could see banks and building societies reducing their interest rates even further.
A far cry from what they used to be...
Before its reduction, base rate had remained at an all-time low of 0.5% since the 2008 credit crunch – which led to rates on savings accounts hitting rock bottom.
This is a far cry from October 2007, when base rate was 5.75% and the average one year fixed rate bond was 6.15% (according to the Building Societies Association). At the time the inflation (the rate at which the cost of living is rising by) was 2.10%. In stark contrast, June 2016 one year fixed rate bond's figure was 1.03% (with inflation at 0.50%).
Looking at the difference in monetary terms, if you had a £20,000 pot of savings in 2007, you could potentially achieve gross annual interest of £1,230 - whereas this year you'd recieve around £206.
Now base rate has fallen even further, it’s likely that the annual returns on savings accounts will be lower. So if you’re saving over the long-term, it may be even harder to beat the rising cost of living and achieve your goals.
But there are other alternatives that can help you achieve the returns you need to get you where you want to be. So now may be the time to consider other options for your money.
What about investing?
Investing is a route many people shy away from. After all, it can seem complex even for experienced investors.
But if you have long-term goals and want to get your money working harder, investing in the stock market could be the right direction for you. Although it involves your capital being exposed to the risk of losing some, or all, of your investments, you have much greater potential to achieve the returns you may need to achieve your long-term goals.
That’s not to say you should avoid savings accounts altogether – which are great for short-term goals, involve easy-access and no risk to your capital. But if you’re saving for the future, investing has the potential to help your money grow sufficiently and beat inflation – which could make a huge difference to your future.
As investing is completely different to saving there is a lot to consider. It may prove highly worthwhile speaking to a financial adviser, as they can offer you extra insight and support by explaining how investing works, assessing whether investing is right for you and making recommendations that are personalised to your circumstances.