IT has now been a whole decade since the last time interest rates were increased by the Bank of England.
In July 2007, rates were increased from 5.5 per cent to 5.75 per cent – and since then, there has been a series of rate cuts.
So what has been the impact for savers and ?borrowers – and how could you improve your financial situation?
The financial service company Hargreaves Lansdown has carried out analysis into the impact of descending rates, which has left the Bank of England base rate at a record low of 0.25 per cent.
For cash savers, the paltry returns available mean £1000 stashed in a typical instant access account over the past 10 years would be worth just £878 in today's money, once the eroding impact of inflation is also taken into account.
A huge £179 billion is sitting in accounts earning zero interest – up from £23 billion 10 years ago.
In contrast, the same £1000 investment in the UK stock market in July 2007 could now be worth about £1323 after adjusting for inflation, Hargreaves Lansdown calculates.
Cash savers have been feeling the pinch, but borrowers have seen the cost of their repayments kept relatively affordable with zero per cent credit-card deals and record-low mortgage rates in recent years. The typical mortgage rate fell from 5.8 per cent in July 2007 to 2.6 per cent by July 2017, said Hargreaves Lansdown.
The period of lower rates means about eight million in the UK have never seen an interest rate rise by the Bank of England in their adult lives.
Consumer credit – credit cards, personal loans and overdraft borrowing – has been growing strongly recently, which has fuelled concern people could become over-reliant on credit, leaving them vulnerable.
Alec Pillmoor, a personal insolvency partner at the audit, tax and consulting firm RSM, says: "This new generation of borrowers could well get a nasty wake-up call.
"Those tempted by attractive loan and credit-card deals, car finance offers and low-rate mortgages may find that any rise could leave them with less cash available to meet repayments. Those struggling now would do well to consider reining in any additional borrowing."
Laith Khalaf, a senior analyst at Hargreaves Lansdown, suggests ways savers may make their money go further:
•Shop around for the best rates – sometimes it's easy to just leave cash in your current account, but chances are you could be doing better from a savings account.
•Make sure your cash is held tax-efficiently. Low interest rates and the new savings allowance have made people question the purpose of a cash ISA, but interest rates can rise and a cash ISA offers some future-proofing for your savings.
•Consider a stocks-and-shares ISA if you can leave the money invested for five to 10 years. Rates of return are higher, but so is the risk so you need to be willing to accept the ups and downs of the market.
Meanwhile, he says borrowers should make sure their debt is affordable even if interest rates rise, so they should work out if they have some slack in their household budget that could be used if repayment costs do start to increase.
He adds: "Paying down debt is advisable, starting with the balances on which you pay the highest interest."
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