The phrase "credit crunch" is familiar to us all now as everyone begins to feel the pinch of high interest rates, soaring house prices and the increasing cost of living.
We’re all worried about inflation creeping back into daily life and affecting prices on the high street. But so far those fears are just that – fears. The Bank of England today tried to calm our concerns about inflation and the rising cost of living by cutting its base rate of interest from 5.25 per cent to 5 per cent.
And some suggest it won’t be too long before interest rates start to drop even further still.
So has anything really changed? Well, with around 1.4 million people due to come off a very cheap fixed rate mortgage deal this year, the current cost of borrowing will still hit some of us hard, even with the rate decrease.
MoneyExpert.com talks you through the options.
I’m a homeowner
A steady base rate of 5 per cent means average standard mortgage rates are still significantly higher than they were even two years ago. In fact you’d have to turn the clock backs seven years to find rates as high as this.
The question is, if you’re a homeowner, how will you cope with this higher cost of borrowing? For those of you on fixed rate deals, this depends largely on how close you are to coming off that cosy introductory deal.
If you are coming to the end of a deal, you should consider the possibility that your next mortgage will cost you significantly more than your last. The extra cost of repayments could be significant.
If this sounds familiar and you’d like to shop around for a decent deal, click here to compare mortgages.
I’m a saver
Rates are still high – and unless the Bank of England does something really drastic they’ll stay high comfortably high for a while yet. That’s good news for savers as it means you’ll continue to benefit from a competitive marketplace. In fact, you won’t have seen rates as high as they are now since 2001.
A base rate of 5 per cent is decent and has sparked a string of high-interest savings accounts from lots of banks and building societies. Ok, so it’s not 5.75 per cent – but the offers are still out there so shop around and you could benefit from a decent return on your savings.
The critical point is that you must ensure you put your money where it can grow effectively – that means in an ISA or savings account that pays well. A current account is likely to give you poor returns so think again if you’re stashing your cash in that way.
Savings accounts are a much better option. Online access makes switching easy and the internet saver accounts often offer some of the best deals. It’s definitely worth spending a few minutes shopping around online to see if you can benefit.
However don’t forget to check the most obvious place of all – your own bank! But if you do want to compare the market, click here to find a the best savings rates around.