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Negative Interest Rates on your Money

The Bank of England has started to tease the idea of negative interest rates, which usually means they are coming.
With negative interest rates already happening in Switzerland, Japan, Sweden and Denmark, the UK is not far behind in adopting what would have been unthinkable, only a few short years ago.

We look at what this means for your money.

How do negative interest rates work?

In reality when you put money into a bank, you are effectively lending the money to the bank, and in return, when interest rates are in the positive you should get more money back than you put in.
But in a negative interest world, by keeping your money in the bank, you will get less money back than you put in.

Why is this happening?

The Bank of England needs the economy to move, and in these extraordinary times, with people concerned about their future, that isn’t happening.
The theory is, if you punish people for keeping their money in the bank, then those people will take their money out and spend, hopefully boosting the economy.

What happens to loans?

Unless you have a variable rate loan then nothing, and as most loans in the UK are on a fixed rate, if interest rates go up or down, your repayments will remain the same.

Will my Mortgage be cheaper?

For those on a fixed rate mortgage, the answer is no, but for those on a tracker mortgage whereby the loan goes up or down based on the Bank of England base rate, your repayments should come down.
However, irrespective of how low interest rates go, most tracker mortgages have a safety mechanism in place for the bank, and will not go below a certain positive interest rate.

We can never be sure what the long term effect that negative interest rates could have on the UK economy, but the best way to protect yourself is to stay informed.

Bank of England letter for negative interest rates

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