What does Brexit mean for savings rates?
Savings rates were already depressed before we voted to leave the EU. I'm sorry to be the bearer of bad news but the situation is going to get a little worse.
The Bank of England cut the base rate by a quarter of a percent today (4th August); its first move since 2009. Banks are likely to lower savings rates in response, which means you won't earn as much interest.
Is it worth moving my savings?
Yes, without a doubt. If you haven't switched up your savings in a while then get cracking and check your rate. If you've built up some savings then you need to protect them.
A recent report by the Financial Conduct Authority showed that many older accounts are paying as little as 0.05%. With inflation now at 0.25% (this is a measure of how fast prices are rising) if you're earning less interest your savings are actually going down in value over time. You need to make sure your savings are earning the same rate as inflation to protect their buying power.
Will I have to pay interest on my savings?
No, despite the scary headlines your bank isn't going to ask you to pay interest on your savings anytime soon.
Theoretically this could happen if the Bank of England moved the base rate below zero and your bank changed its terms and conditions. They'd need to notify you about this and there would be an uproar but the Bank of England have already indicated they're incredibly unlikely to do this.
If the base rate did move into negative territory the likelihood is your bank would keep paying interest on savings and put up fees and interest on other services to compensate. A number of the big British banks have changed the T&Cs on their business bank accounts to allow them to charge negative interest rates if the base rate moves too far south. They're being savvy just in case - if you don't have a business you should see it as a move that will reduce the likelihood your bank will struggle to pay unsustainable interest bills if it's got less interest coming in.
If you do have a business, now is the time to watch your bank like a hawk.
Why are savings rates so depressed?
It's a combination of the low base rate and the fact that banks simply don't need your cash.
The Bank of England pumped money into the economy during the last financial crisis to make sure banks could keep lending. It's likely they'll start doing this again now to offset the risk of a Brexit-induced slowdown.
Altogether this gives banks a way to easily get their hands on cash without paying you for it. Unfortunately, this means savings rates will stay low for a little while yet.
How to get a decent return
It is still possible to make your savings work hard. My top tips are:
1) Paying interest on credit cards or loans? You're likely to be paying more out than you are getting back so think about using savings to pay some or all of them off. Just make sure you keep enough cash to cushion you against the unexpected - 3 months is a good benchmark for starters. Check loan agreements to make sure you won't get clobbered with early repayment fees and explore whether a 0% balance transfer or money transfer would be a more cost effective option before you act.
2) High interest current account. You'll be able to earn up to 5% AER and can combine a number of accounts to get a decent return on all of your money. You just need to make sure you do the necessary to make sure you get the rate including paying enough into the account each month (although there's nothing to stop you taking it straight out again).
3) Regular savers. These are a good way to earn up to 6% AER if you're paying into your savings every month. They'll only last a year though and you'll need to move your money elsewhere.
4) Fix your savings rate. One way to protect the value of your savings is to go for a fixed rate bond. It's worth going for an account that lets you access your cash if you need to in return for an interest penalty. This way you can shift your money again if you find a more profitable home for it.
5) Offset your mortgage. If you've got a house and savings this is worth checking out, especially if you're on your lender's standard rate. Offset mortgages give you a way to pay interest on less of your mortgage so your repayments and your savings work harder. Win, win. Not for everyone but I'm a big fan.
Are my savings still safe?
Yes, no need to worry there. If you have less than £75,000 in savings anywhere they are still protected in full either by the Financial Services Compensation Scheme (FSCS) or, if your savings are based with a bank that's based in the EU (like RCI) the local equivalent.
If you have more than £75,000 (£150,000 in joint accounts) just check that it's split between banks that have separate banking licenses so all of your cash is covered.
The only thing that could alter once we untangle ourselves from the EU is the amount of cover we get. This is because the guarantee itself is managed at a local level (so the FSCS will still exist); it's just the amount that's set by the EU.
Our £75,000 protection is the rough equivalent of €100,000 - the EU standard.
If you're unsure whether your bank qualifies for FSCS or another country's cover then check with them; it's information they have to make really clear.
Can I still get a bonus on a Help to Buy ISA?
Yes, these are up and running and still giving you a way to get a 25% bonus worth up to £3,000 when you buy your first house.
With a new PM and Chancellor in the driving seat we could see this change in the future. It's unlikely they'd scrap all existing accounts, rather stop you getting a new one.
If you are a wannabe first time buyer and haven't yet opened a Help to Buy ISA it's worth doing sooner rather than later just in case.
Can I still get a Lifetime ISA?
They're not available until April 2017 and it's possible they may never see the light of day. It's likely to be something the new Chancellor addresses in either his Autumn Statement in December or his Budget. Fingers crossed he considers them a keeper.
Is it worth looking at investing?
There's never a universally 'best' time to invest; it really comes down to how much cash you have to spare, what you need it for and how long you can do without getting at it.
You need to be in a solid place financially to give investing a go because the money you play with isn't guaranteed and there is a risk you'll get back less than you'll put in. You also need to be willing to tie your money up for the next 5 years or so - investing is a long term game.
If you're keen but not sure where to start then robo investing platforms like Wealthify give you a way to dip your toe in the new water.
You need to decide your appetite for risk before you start - that means thinking about how comfortable you are with the possibility of losing money whilst gambling on the chance of a greater return.
If you're going to invest independently then go for a range of options to spread your risk, go for what you know so it's easier to follow the market and be ready for a nail-biting ride.
If you haven't used your ISA allowance then go for an Investment ISA to make your investments as tax efficient as possible.
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