Base Rate and Saversí Options

Base Rate and Savers Options –

Itís now been six months since the Bank of England slashed the base interest rate to its lowest ever ñ just 0.5%.

So why are you probably paying ten times this rate on your mortgage or loan? Or for that matter, getting several times this rate on your savings?

Just a basic understanding of how the credit crunch came about will teach you how to get the best deal on your savings.

Put simply, the banks lent too much money to people like you and me. Then a couple of years of ago, as the housing market started to collapse, they realised they might not get it back and abruptly stopped lending.

If you think that sounds like shutting the stable door after the horse has bolted, well, you would be right!

But the government, desperate to keep the banks lending and prevent the housing market and economy from collapsing, slashed base rates so the banks could borrow cheaply and carry on lending to us.

Itís a strategy thatís worked ñ up to a point. Banks can borrow from each other at lower rates than they used to but theyíre still desperate to build up their capital. Thatís why most mortgage rates are way above the base rate.

But on the plus side, theyíre desperate for savers cash too, which is why savings rates have crept up again.

Thereís a battle going on. Now more than ever, banks need to lend again as thatís how they make profits. But they need to borrow too in order to build up their capital.

So what weíre seeing is their desperate attempt to tempt savers with what appear to be attractive rates, often to reduce these rates once savers have been drawn in.

So as a saver, the key is keep a close eye on the rate youíre getting and not waiting a single moment to move your money if you spot a better deal. Not only does this mean youíll be getting your cash to work to work as hard as it can; but the more of us that switch to better deals, the more banks will realise how futile it is to keep playing games with their customers.

If all this sounds like hard work, then relax.

As banks know Internet accounts are the cheapest to run, theyíre usually the ones that offer the best rates. But the advantages to savers donít end there. Switching accounts on the web is simple and, above all, price comparison sites such as give you all the information you need to spot the best deal for you. Trawling a wet and windy High Street is not only inefficient, itís totally unnecessary too.

Price comparison sites are the best tools you have to make your money work as hard as it can during this recession. So make sure you use them ñ and donít lose out!

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