What to do with Savings if the Base Rate Falls

A fall in interest rates can be bad for those people with savings as it means they will not be getting such a good return for their money. Some people will worry about this and look for ways that they can get a better return on their savings. here are things they could do in order to help that should help to provide a better return.

Pay off debts

Using savings to repay debts can be a good idea at any time. Savings interest tends to be lower than the interest that you get charged on debts. This means that it makes financial sense to repay debt rather than having money in a savings account anyway. Whether rates are high or low, this will apply and therefore it is always worth paying off your debts rather than saving money. It can be hard doing this, particularly if you have been saving up for a specific thing. However, you are spending more money than necessary of you have savings rather than paying off debt and so it is well worth ding it. You will be able to build up your savings quickly once the debt is repaid and you can put that money into a savings account instead. You should soon be able to build up your debts again if you

Put money into a different account

Even if savings rates do go down, you will have options as to where to save your money. If you search you could find that you can move money so that you get a better rate than you are getting now. Therefore, even if rates do go down, you will still get more in interest. If you choose an account which has a fixed rate for a particular time period (perhaps one to five years) or one that you have to give notice to draw out money, you will find that you can get higher interest. Therefore, if you are happy to tie your money up for a while then you will be able to get a higher return. It is good to just take a look at the difference between the different rates and decide which you think looks to be the best for you. There are plenty of places where you can find out about what rates are being offered and what accounts are available. If you want instant access to your money then you will not get such a good rate. You may even find that using a current account that pays interest will be a better way to save money in an instant access account than a savings account. It is worth doing some research to find out.

Invest instead

Investing money will traditionally bring a higher return that saving it. However, you need to be careful with this because investments can be riskier. You tend to need to be prepared to have your money invested for a significant period of time. Most investments should not be touched for at least ten years to allow for natural fluctuations in the markets. Choosing and buying investments can be tricky and it would be wise to seek the help of a financial advisor with this so that you can be sure that what you are doing is sensible. Make sure that you let them know how much risk you are prepared to take so that they can pick something for you that works. Often the more risk you take, the higher the return you can potentially get but promises of big returns can be misleading so it is wise to get help if you do not know much about investing yourself.

Spend it

You could spend the money if you are not making much by saving it. Perhaps paying for things that you have been putting off, such as decorating or repairs to your home, a more efficient car, stocking up on items that will not go off and that you will use in the future and things like that. It is best not to just buy things for the sake of it as that is wasteful and will create clutter, but if you stock up on toiletries you know you will use or even do your Christmas shopping early, you will protect yourself from price rises and you may even get a better return on your money this way, as prices go up compared with keeping the money in a savings account which pays an interest rate that is lower than inflation.

It is worth not worrying too much about the changes in the base rate and the effect it might have on the return you get on your savings. Unless you have a lot of money saved, then the amount of interest that you get will be limited anyway. Changing to an account that pays better interest rates will make some difference though. However, you might be better off considering investing or spending the money.

How to Protect Yourself Against Interest Rate Rises

If you are worried that interest rates will rise then there are things that you can do to protect yourself from any impact that it may have.

Take out no loans

If you are worried that interest rates will rise, particularly if you think that they will escalate then you may want to consider waiting before taking out any loans. The problem is that you will not want to delay forever though, as you may want the money for something specific. If you are borrowing for a long time – such as a mortgage, then if you wait a while the interest may go up even further. It may be best to take the loan while the rates are lower and take advantage while you can rather than delaying, when it is possible that you could be paying higher rates for the long term. If you are taking out smaller loans, then consider whether you can just go without the loan entirely. You might be able to save the money up instead and that could mean that you will not have to pay any interest at all. In fact, rising interest rates could mean that you get a better return on your savings.

Use a fixed rate

If you are taking a loan and fear that it may be too expensive to pay the repayments if the interest rates go up then it could be wise to choose one with a fixed rate of interest. A fixed rate may be dearer than a variable rate but if the base rate goes up, it will stay the same. This should help you to be able to manage more easily. There are different loan types such as those for bad credit customers, that have fixed rates and so it could be worth comparing them to see which might be the best for your needs. It is worth being careful with a fixed rate though as if the base rate does not go up or goes up just a little bit, then it will actually have been cheaper to have stayed with the variable rate.

Put money in savings accounts

Saving money is the best thing to do when interest rates rise. If you save regularly then you can use that money to pay for things when you need them rather than having to borrow. As interest rates go up, you will get more interest on your savings. It also means that if you have loans and find that an increase in interest rate makes it hard to manage the repayments, you will have money in the savings account that you can use to help you out. You will need to get quite a lot of money in that account as interest rates could stay high for a while or rise even more. This means that it is worth thinking about how you will do this. It can be wise, for example, to put some aside each month. Setting up a direct debit is the best way to ensure that you will not forget. Set an amount which you can afford but is still significant so that you can start building up a good sum of money.

Increase your income

If it is possible, then it could be a good idea to increase your income in line with rate rises and then you will be able to afford them. If you are self-employed then you might be able to do this by charging more or if you are employed you may have to ask for a pay rise. You may also need to take on extra work, do more hours or things like this to increase your income. You will know whether this is something that you will be able to do depending on your current circumstances. It can be worth checking immediately whether this is possible, especially if you will have to take on extra work. Consider whether you are allowed to do this according to your current employment contract, whether you will have the time and whether there is work out there that you can do. It is good to think about all of these things so that you are away of the situation and any risks that you are taking.

Spend less

If increasing your income is not an option, then it may be possible for you to spend less money. There maybe areas where you are already aware that you spend too much and that you know you could cut down in if you have to. If not then take a careful and close look at your finances and try to identify them It might be that you could shop at a cheaper supermarket, move to a cheaper phone contract or buy less things generally. You may not want to do this immediately, but if you can think of areas where you can do it, then this will hep you if you do need to.