Anyone withdrawing savings due to 1% base rate?

sh856531

The BoE is setting the base rate low because after the high raw material inflation last year we are now in a period of deflation. Prices are dropping. The BoEs sole duty with the base rate is to control inflation/deflation. With hindsight one could say that the BoE raised interests too high last year.

Hi Linton

My view of why the BoE cut interest rates is probably a bit simpler than that. In my view, they've cut interest simply to make sure that as many people as possible have as much spare income as possible in their pockets due to reduced mortgage payments. With more money in their pockets the hope is that people will go out and spend it, which will in turn keep people in jobs. In theory at least.

To me it's basically just a question of getting as much money into as many peoples hands in the shortest space of time as possible. Whether thats a good thing or not in the long run is a pretty open debate at the moment I think.

Best Regards

Simon

StrawberryJam_2

I have £6k in a CashISA @2.05%
I have £6K in a Fixed Savings account @ net 5.04% (ends in October2009)

should I transfer my CashISA fund to my fixed savings? or would you regard this as a knee-jerk reaction? my gut feeling says keep it in the CashISA
(my mortgage is currently @1.23% therefore I do not wish to throw anything at it)

Also at the beginning of the new financial year, should I move £3.6K at the first opportunity or wait till later in year (possibly last day of the financial year?) Just slightly dazzled by what has happened in the last 6 months, and seek some re-assurance

sh856531

Hey,

(my mortgage is currently @1.23% therefore I do not wish to throw anything at it)

Unless I'm misunderstanding you, what you've said there doesn't make any sense. If anything, a period of extremely low interest rates is precisely when you should throw money at your mortgage because far less of the money you are putting towards it goes towards interest. As such you reduce your debt far more quickly than would otherwise be the case.

Many people are taking the aproach of trying to hammer as much out of their mortgage as possible right now because they know there will never be a cheaper time to reduce the massive debt that a mortgage constitutes.

Whether that makes financial sense is sepecific to each persons own circumstances because you can sometimes get a better return on savings than you can by reducing your debt quickly, but there is also always a strong physcological effect of being able to repay all that capital sooner rather than later.

HTH

S

Primrose

StrawberryJam - I'd move your spare cash into next year's ISA as soon as possible and get the benefit of the tax-free interest. . If you wait until the end of the tax year and you've got the money in an ordinary savings account you will be paying tax on the interest earned throughout the year. Whilst it won't be a huge amount, there's no point in paying any more tax than possible, especially when our taxes are already bailing our the banks. I'd certainly hang onto your existing ISA. Once you've lost the tax advantage on that £6K you will have lost it for ever and over the years, if you subscribe to an ISA every year, you can protect a reasonable chunk of your savings from tax. If you're unhappy with interest rate you're getting on it you are always free to check around and find another provider offering a higher rate, but don't withdraw it otherwise you'll lose the tax advantage.. Go through the approved transfer procedure. Your provider will provide the appropriate official transfer form.