Experts Warn Britons to Take Action as Interest Rates Rise
Interest rates have started to rise again, which is good news for savers. However, financial experts are warning Britons to take the right steps during this time. While interest rates have been low since the start of the pandemic, the recent rise means people can earn more money from their savings.
Rising Rates and Inflation
Galina Stavskaya, Head of Investments at Claro, warns that although interest rates are rising, so too is inflation. If a bank is offering less than the current inflation rate of 2.1%, the value of cash savings will still be falling over time. Sarah Brill, a Financial Coach also from Claro, explains that rising interest rates are caused by inflation, which happens when there’s increased spending and movement in the economy. While this is a good sign for a recovering economy, the government will always try to keep inflation under control.
Challenging Picture for Britons
New research from Claro has shown that under a third of those under 30 earning £40,000 or more are classed as ‘High Income Perpetually Poor Young’. This group has reported that they regularly spend more than they earn, despite having a good salary. It is important for everyone, no matter the age, to take advantage of the best interest rates to avoid their money not keeping up with inflation and savings declining in value.
Planning Ahead for Uncertain Future
While the rise in interest rates is good news for savers, the future remains uncertain. To prepare for rainy days, people should establish an emergency fund that is easily accessible, even if the interest rate is slightly lower than locking away cash. For those who want to make their money work even harder, the stock market may be an option. However, individuals should always do their research and understand that they could get less than they originally invested due to fluctuations.
Taking Sensible Next Steps
Ms Brill advises people not to make rash decisions when interest rates rise and fall. They should get clarity around what they want to achieve and put their savings where they work best for them. People should review their current account, regular savings accounts, easy access accounts, and flexible ISAs. For savings they don’t need immediate access to, they can take a look at one or two-year fixed-rate bonds, Premium Bonds, and ISAs. It is also important to compare interest rates from different banks or building societies and make the switch if a higher rate is available.
Shopping around for the best rates and taking action are key steps for Britons to adopt if they wish to improve their savings potential. While the economy is beginning to reopen, people should remain cautious because it is not likely interest rates will increase significantly. The Bank of England aims to keep interest rates low to stimulate the economy, which makes borrowing less expensive but promotes savings.