Today marks 5 years of low interest rates, following the Bank of England slashing the Bank Rate to 0.5% on 5th March 2009.
This represented a cut in interest rates to their lowest level in 300 years.
It was prompted by the nationalisation of Northern Rock, taxpayer bailouts of RBS, Lloyds and HBOS, and the collapse of Lehman Brothers.
The 18 months leading up to this 5 years of low interest rates was a dramatic and traumatic time for global financial markets.
Within the space of just five months, the Bank Rate fell from 5% to 0.5%.
What has 5 years of low interest rates meant for savers, borrowers, investors and the economy?
According to research by consultants McKinsey, savers have lost out to the tune of some £65bn during the past 5 years. Campaign group Save our Savers believes the figure is even higher, at £250bn, as a result of rampant price inflation.
In September 2008, the average interest rate on savings accounts was 3.08%, with the best rate available at 6.4%. Today the average has fallen to 0.76% and the best rate on offer is 1.5%.
Borrowers with mortgage should have been the beneficiary of 5 years of low interest rates. The extent of this benefit depends on the type of interest rates connected to your mortgage.
The average Standard Variable Rate (SVR) fell from 7.24% in 2008 to 4.39% today.
Assuming you have a £100,000 interest-only mortgage and only stayed on an average SVR during the past 5 years, these falling rates would have resulted in savings of £13,300.
Borrowers have experienced falling costs, but rates have not fallen by the same magnitude as those witnessed by savers.
With house prices growing strongly over the past year, driven higher by rising demand and limited supply, mortgage borrowers have been a major beneficiary of 5 years of low interest rates.
Investors have also done well out of 5 years of low interest rates.
Back on 5th March 2009, the FTSE 100 index of leading UK company shares closed at 3,529.90. The Bank of England programme of quantitative easing, which came along with low interest rates, has since driven the index much higher, opening this morning at 6,823.80.
This represents a rise of 3,293.90 points or 93.3%; investors have been extremely well rewarded for taking risk over and above that taken by cash savers.
There are signs that 5 years of low interest rates have been generally beneficial for the UK economy.
Businesses are doing well across the UK, with new data released earlier this week showing hiring in factories picked up at the fastest rate since May 2011. Stronger consumer spending and an upturn in the property market are both positive indicators of economic recovery.
The next 5 years are unlikely to be a repeat of the last, with low interest rates here for now but expected to start rising early next year.
What has been your experience of 5 years of low interest rates?
