How much lower can interest rates go?
National Savings & Investments has announced that it is reducing the interest rates payable on its savings products from 24th November 2020.
For the last few months, National Savings has offered a combination of the highest level of protection for your cash and competitive interest rates.
Now, it is reducing the interest rates payable on its easy access Direct Saver account to 0.15%, and its Income Bonds to just 0.01%.
The rates for its other products, including the rate used to calculate the prizes for Premium Bonds, have reduced to similar levels.
Banks and deposit takers seem to be engaged in a competition to have the most number of zeros after the decimal point for their savings rates.
It is important to remember, particularly as the effects of the recession bite, that only the first £85,000 of your savings, per bank, is protected by the Financial Services Compensation Scheme.
However, all of your savings with National Savings are protected, regardless of how much you have with them.
For those who cannot use the services of National Savings (companies, for example), it may be worth making use of one of the services which automatically spreads your balance across different institutions, so all of your savings are protected.
Importantly, it may not be long before we start to see banks charging us for the privilege of leaving our money with them – negative interest rates.
Investors will be presented with new challenges if that happens.
However, some things won’t change, even if bank rates drop below 0%.
If you invest in anything other than deposit accounts, you should expect the value of your investment to go down as well as up.
If you put your money into shares, property, fixed interest stock or anything else, you will be taking a lot more risk in the short term than if you leave it in the bank.
There will be people out there who will tell you that they can earn you a higher rate of interest without taking additional risk.
These people will still be criminals or incompetent, as they have always been.