Are we seeing a slow rise in interest rates on savings accounts?

snowqueen555

Was going to go for a 0.75%, then saw 0.85, 0.9% (which I have now locked in).

There is now a 1% fixed bond now, so I'm wondering if this is the trend or just blip?

melbury

Me too. I was offered 0.75% to reinvest, but decided to wait and see what happens over the next week.  After all it’s not as if you are losing that much money by delaying.

Perhaps they will put base rate up to 5% or so at the next meeting😉 (only kidding)

older_and_no_wiser

melbury said:

Perhaps they will put base rate up to 5% or so at the next meeting😉 (only kidding)

Haha. You nearly had me!

Out of curiosity - and as a hypothetical discussion - let's say the interest rate did rise to 5% next month. How will that impact the economy and investments/stocks?

I'm guessing people will stop spending money and start saving. This will impact a lot of stocks, so investment returns will suffer. Mortgage rates would shoot up which would impact the housing market considerably. 

How about the bond market and impact on portfolios?

kuratowski

If that happened, there would be a wave of corporate insolvencies.  If you look at the early 1980s, when interest rates were hiked to get inflation under control, there was a lot of unemployment.  So we can be sure it wouldn't look pretty.

Bond prices fall when interest rates rise, and on average I believe equity prices would fall too, if became likely that interest rates were going to be higher than currently priced in.  Although some stocks would benefit, e.g. banks, others would not, especially leveraged sectors such as real estate.  Dividends would likely fall because profits available to distribute would be lower, after debt servicing costs.

So overall the impact would be adverse.  Mainly because everyone is currently positioned expecting the current low interest rates, so it would come as a shock.

talexuser

CPI 0.4%, then 0.7%, now 2.1%. Friends have started saying "have you seen the prices in the supermarket?" to me. I think these rates will be more painful yet.

jimjames

swleventhal said:

melbury said:

Perhaps they will put base rate up to 5% or so at the next meeting😉 (only kidding)

Haha. You nearly had me!

Out of curiosity - and as a hypothetical discussion - let's say the interest rate did rise to 5% next month. How will that impact the economy and investments/stocks?

I'm guessing people will stop spending money and start saving. This will impact a lot of stocks, so investment returns will suffer. Mortgage rates would shoot up which would impact the housing market considerably. 

How about the bond market and impact on portfolios?

If rates go up those without fixed mortgages will suddenly have to pay a lot more each month which will reduce money available for other items. For some it may not be possible and repossession will take place eventually. House prices are more likely to then drop causing negative equity if they go down enough. You only need to see 1989-90 to see the impact of rising interest rates.

snowqueen555

5% hike on mortgages will wipe many people out, at that point the wider economy would be in serious trouble.

Thrugelmir

Central banks provide forward guidance in order to maintain orderly financial markets. 

eastmidsaver

hope so,  i never like fixing, and currently i am getting 0.5%

SouthCoastBoy

snowqueen555 said:

5% hike on mortgages will wipe many people out, at that point the wider economy would be in serious trouble.

If that is true it illustrates how much trouble the economy is in 5% is not a high interest rate.

sevenhills

SouthCoastBoy said:

If that is true it illustrates how much trouble the economy is in 5% is not a high interest rate.

I am on a 10-year fix, I would think there are a lot of borrowers with 5/2/1 year fixes, so it would take a few years to affect all borrowers.