With the bank base rate slashed to 0.1% and stock markets in turmoil, what does the future hold for your savings and investments?
Please note that this article was written on 14 April 2020 and last updated on 29 June 2020.
Interest on your savings
The Bank of England base interest rate is now at its lowest level on record at 0.1%. This is bad news for savers as lower base rates mean lower savings rates.
Most savings accounts and cash ISAs are variable rate. This means the bank or building society can change the interest rate. If you have one of these types of accounts, it’s likely you’ll have seen your savings rate fall.
If you’ve got a fixed-rate savings account, the interest rate won’t change. However, when your fixed rate ends you may find the new rates available to you are considerably lower.
Taking cash out of your savings
Easy access savings accounts are designed to let you take money out of them when you need it. But fixed-rate accounts usually apply a penalty if you withdraw your savings early or may not let you take money out until the end of the term.
Some banks and building societies have been waiving these fees for savers who need to get at their money in a hurry because of the effects of coronavirus. If you have a fixed-rate savings account and need to take out some of the money, check with your savings provider for details.
Should you save?
With savings rates so low, you may wonder if you should still bother to save. The answer, if you can afford it, is yes. As the last few weeks have shown, you never know what’s around the corner and having savings to fall back on in difficult times reduces stress, gives you choices and cuts the risk of falling into debt.
Stock markets fell significantly due to coronavirus. While there are some signs of recovery, it's likely that things will remain volatile for some time to come.
The key is to not panic about weekly or even monthly changes in the value of your investment. Investing should be for the long term (at least five years or more) and, while not guaranteed, over the long term the general trend in stock markets is upwards.
If you make a panic decision and sell your investments when they've fallen, you’ll have turned the loss you have on paper into an actual loss – you’ll only get the value of your investments now and you won’t benefit from any subsequent recovery of the stock market. Although there are no guarantees, if you leave your money where it is, your investments at least have a chance of recovery over the next few years.
You might think stock market investments don’t affect you, but if you have a personal pension or a pension ‘pot’ type of workplace pension (such as a defined contribution scheme) then your pension contributions will be invested in the stock market.
If you keep a regular eye on the value of your pension, it's likely you saw it drop as a result of the coronavirus pandemic. But as with all investments it’s very normal for the value of your pension pot to go up and down. And sometimes these ups and downs can be quite dramatic.
If you’re still far away from retirement, your pension pot will have many years to recover. This period of uncertainty should not have any major impact on your retirement plans.
If you’re already taking money from your pension, are about to retire or have less than five years to retirement, things are undoubtedly more difficult and you may need to review your plans. For example, if you were planning to retire soon, you may need to delay your retirement or take less money from your pension, or both. If you’re already drawing money from your pension pot, you may need to have another look at how much income you can take each year. You can read the latest on what’s happening with stock markets and the impact on your pension in our market report.
Where to get help
- If you’re concerned about your pension or investments, it’s a good idea to consult a financial adviser before taking any big decisions.
- You can get free pensions guidance from The Pensions Advisory Service on 0800 011 3797. This is an impartial service from pension experts who can help you understand your pension options. Unlike with financial advice, they can’t tell you what you should do but they can help you narrow your choices.
- If you’re over 55 and considering taking money out of your pension, you can book a Pension Wise guidance session to fully understand your options.
Watch out for scams
Be aware that fraudsters are using the coronavirus outbreak to scam people out of their investment and pension savings. If you get an unsolicited or unexpected call, email or other approach to take or move money from your pension, or to take up an investment opportunity, be very suspicious.
Above all, don’t rush any major decisions and take time to get independent advice or guidance first. See our guide on scams and how to avoid them for more information.
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