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What has 7yrs of low rates done for your finances?

What has 7yrs of low rates done for your finances?

Category: Money

Updated: 15/03/2016
First Published: 03/03/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

This coming Saturday, 5 March, marks the seventh anniversary of base rate being cut to its record low of 0.5% and of the Bank of England's Quantitative Easing (QE) plan being introduced. But just what has seven years of record low rates done for your finances? Hargreaves Lansdown has taken a look.

Good for borrowers…

The analysis shows that borrowers have definitely come out on top as a result of low interest rates, with the average mortgage rate falling by 31% since 5 March 2009. Our own figures highlight just how far rates have fallen, with the average two-year fixed mortgage rate being at a record low of 2.54%, and the five-year rate following suit to stand at 3.25%.

Those seeking personal loans have undoubtedly benefited, too, with loan rates having also fallen rapidly in recent years. In fact, you can now secure a loan of £7,500 to £15,000 for as little as 3.3% APR (depending on your credit rating, of course), the lowest rate ever available, so there's never been a better time to be a borrower.

And what about credit cards? Here, too, you can benefit, as although the average credit card APR has hit a new high, the number of cards that charge no interest whatsoever is continually on the rise. Not only that, but the average 0% balance transfer term has hit record levels in recent months, too, so if you're savvy with your borrowing choices you could well be better off.

… but bad for savers

However, things aren't looking anywhere near as rosy for savers, with the savings market having notably suffered as a result of the rate cut. In fact, Hargreaves Lansdown found that the amount of money held in cash savings accounts that pay no interest whatsoever has almost doubled in the last seven years: there's currently £106bn held in such accounts, up from £58bn in March 2009, which means a huge amount of cash is being left at the mercy of inflation.

The calculations went on to reveal that an estimated £160bn in interest has been lost by cash savers since March 2009, a direct result of the poor savings rates of recent years. By all accounts, things aren't set to get any better in the foreseeable future: our own figures show that fixed savings rates have fallen dramatically in the last month, reversing some of the signs of life seen last year, and with the prospect of a rate rise pushed further back, there's little light at the end of the tunnel.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said that loose monetary policy of the last seven years has "annihilated" the returns on cash, while borrowers, as well as investors in the wider stock market, "have had the best of it since QE started". He points out that mortgage costs have fallen significantly from pre-crisis levels, but cautions borrowers to remain aware of the underlying risk.

"If borrowers get too comfortable taking on high levels of debt at low interest rates, they could be in for a nasty shock if and when rates rise", said Laith, so the message is clear – be savvy with your money! Only take on the level of borrowing you can afford, particularly when it comes to your mortgage, because if rates were to rise and your repayments followed suit, you wouldn't want to be struggling.

Don't be too disheartened when it comes to savings rates, either. Rates may be falling but there are still some good deals to be found – check out our best buys to get started – and you may have even found that some of the losses you've experienced from poor savings rates have been offset against lower mortgage rates and even higher house prices (which have risen by 32% since March 2009), so all is not lost.

What next?

Benefit from low rates by comparing mortgage deals

Use our loan calculator to see how low your repayments could be

Compare savings accounts to find the best of the bunch

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.