By David Porter, Financial Planning Consultant, Armstrong Watson LLP

INTEREST rates matter to everyone. Whether you’re a saver or a borrower it’s important to know about the level of interest rate and its impact on your finances.

Falling interest rates make it less rewarding to save but may mean interest payments on loans and mortgages decrease, so finding the balance between saving and investing is key - especially at a time when the Bank of England is looking at the feasibility of a ‘negative interest rate’ policy, potentially the first in UK history.

This refers to the Bank of England base rate, set by the Monetary Policy Committee (MPC), which influences all other interest rates – such as those charged on loans and paid on deposits. It’s not the only influencer, however, and a negative base rate doesn’t necessarily mean all interest rates will turn negative.

In February 2020 the base rate was 0.75 per cent. At the start of the pandemic in March, it was slashed to 0.25 per cent and then a week later cut to the current rate of 0.1 per cent.

The chance of the base rate being cut below zero is higher than ever and the Bank of England has engaged with financial institutions regarding the feasibility of such a scenario. The policy aims to reduce interest rates for households and businesses to boost investment spending and inflation. On the flip side, it’s not great news for savers as interest earned on money in the bank may fall.

It is now more difficult than ever to generate any sort of meaningful return from deposit-based savings.

While it is still important to hold funds in savings, it’s worth weighing up the guaranteed loss of buying power to retain access to and control of funds versus holding the right proportion of our wealth in savings.Investing can include making contributions to pensions which provide the immediate benefit of tax relief.

Before any decision to invest is taken, full consideration of risks, the capacity for and tolerance to loss, objectives and timeframe needs to be undertaken. Seeking financial advice will help you find the balance right between funds held in savings and funds invested.

At Armstrong Watson we work with you to construct a robust plan to cover emergencies and help plan for the future. With our ongoing review service we will regularly review these plans so they remain on track.

For support and advice around planning for your financial future phone David Porter on 01756 620000 or email david.porter@armstrongwatson.co.uk