Interest rate stays at record low Bank of England hold base rate at 0.5%
10 May 2010
Today's meeting of the Bank of England's Monetary Policy Committee, postponed from last week due to the General Election, voted to keep the base rate at 0.5%. The last time it moved was in March 2009.
The rate has been kept low to encourage lending and restore liquidity after last year's credit crunch. The three-month Libor rate (the rate at which banks lend to each other) is slightly higher, at 0.69%, but still much closer to base rate than it was in 2008 and early 2009.
Low rate mortgages
Holding the base rate at a record low has ushered in a period of low interest rates generally. The link between mortgage rates and base sate has largely been re-established, after a period when Libor rates stayed high and drove up the cost of borrowing. Mortgages are currently seen as cheap but could begin to rise if the base Rate moves upwards later in the year. Fixed rate mortgages could be worth checking before rates move and anyone moving or re-mortgaging should certainly shop around and check rates carefully.
If low rates are good news for borrowers, they are a real problem for those with savings. Inflation has recently risen to 3.4% (CPI) and unless you can match this you run the risk of seeing your money lose purchasing power year-on-year. Tax-free Isas offer one possibility, while fixed-rate bonds are another way of earning top rates. Five-year fixes still offer 4.75% or more but if rates rise, they could be a mixed blessing. Easy-access accounts have lower rates, with few topping 2.75%, but at least your money isn't locked in for the long term.
Although mortgage rates have fallen, unsecured loans are still quite expensive, at around 8.9%, even for the most competitive loan deals. Credit card borrowing is more costly still, with the average APR at 16.8%. If you qualify, you can get a credit card that charges just 6.9% but most people will have to pay substantially more.
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