The pandemic has undoubtedly had a huge impact on global finances. With this, the Bank of England has cut interest rates to 0.1%, which will impact how much interest you can earn on your savings. This will also affect how much it may cost you to borrow money.
This rate cut is due to the financial impact of the pandemic, and has been devised to help support businesses over this extended period of difficulty. With news of vaccines and innovation helping to bolster hope for businesses and individuals alike, the future is still uncertain.
This uncertainty means that pension savers will need to stay aware of how their savings may be impacted by low rates, as well as what the future is likely to hold as the world continues to fight against Covid-19.
What do low interest rates mean for me?
Interest rates most commonly refer to The Bank of England’s base rate. This base rate is the certified borrowing rate, and dictates how much they charge lenders when borrowing money from the Bank of England.
This in turn has an impact on lenders, such as high street banks, who will alter their own rates as a result.
Lower interest rates ultimately lower the cost of borrowing money, which can be positive for those looking for loans. However, lower rates also mean that savers will see lower interest earnings on money they put away.
How do interest rates affect pensions?
Interest rates can affect pensions by dictating their value. Lower rates can mean that your savings do not accrue as much interest earnings, which can decrease the value of your pension pot against inflation in the long run.
Interest rate rises can also have a knock-on effect on pensions and their savings. Read our blog about how interest rate rises affect pensions.
With the future hopeful, yet uncertain, it’s important to seek advice on the next steps for your pension savings.
What are negative interest rates?
While interest rates can rise as well as fall, they can also go below zero. Negative interest rates mean that savings stored in bank accounts would decrease over time.
Negative rates also mean that lenders would actually have to pay borrowers for taking out loans. This means that people will then pay back less than what they initially borrowed.
With the pandemic still at large, there have been multiple talks of introducing negative rates to help encourage spending and borrowing.
Negative interest rates can actually be positive for UK bond markets, as bond prices tend to go up in price when yields fall.
KLO Financial Services
If you’re looking for more information and advice on how best to save for retirement, talk to an independent pension adviser today.
We can help you focus on assets that deliver predictable returns. In unusual times such as these, we can also help point you in the right direction to maximise your savings.
If you’d like to discuss how your pension may be affected by low interest rates, contact KLO’s financial advice team today. Please call on 01926 492406 or email us at firstname.lastname@example.org to make an appointment.