What to think about when interest rates drop

Below, we highlight some of the options we could help you explore following the Bank of England’s decision to cut the base interest rate from 4.5% to 4.25%.

If you are a Coutts client, your private banker is here to help you navigate these options and more. They’ll talk you through the implications of current interest rates and outline the pros and cons of any action you’re considering.

And when you’ve decided what you want to do, they can do all the work arranging your finances for you.

How could current rates impact my savings-based income?

If you draw an income from your savings, this is likely to go down when the Bank of England reduces the base rate. If you hold your savings in your current account or an instant access account, then a fixed deposit savings account could give you a higher rate – though be aware you will not have access to the money and the interest it has earned until the term has finished.

Where else could I put money to work?

There are other ways you could potentially protect your income streams or diversify them. For example, you could put your money to work through investments. Our investment portfolios could offer a higher return over a longer time period. They come with varying degrees of risk and potential reward, designed around your goals.

What’s most important is identifying your needs and adjusting your portfolio options accordingly. Your private banker is here to help.

Are instant-access savings still a good idea?

An instant access deposit savings account is a great way to keep your money working while being able to access it any time. But it is likely to earn less interest if there are rate cuts, so it might be time to consider other savings options or investments, even if that means not being able to use the money for a while.

How much should I keep in cash savings?

At least four months’ worth of your essential expenditure could be considered a prudent amount to keep in accessible cash savings. Even if rates go down, having this cash to hand should you need it could be useful in case something unexpected happens.

What are my options if I have excess cash?

Now is a great time to assess where to put any extra cash based on your timeframes and goals.

A fixed deposit could guarantee a set return over time, while lower rates could mean long-term growth for investments held in equity markets or bonds. So putting your extra cash to work in an investment portfolio, at a risk level of your choosing, could also be an option.

You could also consider adding the cash to your pension to ensure you’re making the most of any tax allowances that may be available to you.

Is now a good time to assess my mortgage options?

If you’re looking at a mortgage or considering remortgaging your current deal, your private banker can talk through what might be best for your situation. While it often can be the case, a lower Bank of England interest rate doesn’t necessarily mean a lower mortgage rate. Your private banker could talk you through your options.

At Coutts, we could also help you find the perfect property through our pre-screened panel of leading buying agents.

Do I have any options other than a mortgage if I want to buy a property?

We can offer eligible clients investment-backed loans if they do not wish to sell their investments – property is one of several areas where investment-backed lending could be useful. We’re also able to offer bespoke loans against commercial or real estate assets.

Both these options can be used to support a property purchase and mean you could potentially benefit from a lower rate environment. There are also benefits around the speed of set up and low-fee costs of these loans – but they might not be suitable for everyone.

The final decision whether to proceed must be your own and, in making your decision, you should carefully consider the comparison between borrowing costs and potential investment gains or losses.

Should I remortgage?

Lower rates might create an opportunity to assess your mortgage options, and a conversation with your private banker on this could help. 

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

Over 18s only. Credit is subject to status and approval.

Lending against investments must not be used for residential property renovation or improvements. Security is required. Over 18s only.

Is it worth considering investing or adding to my existing investments?

Historically, we have seen lower interest environments support markets. If you have money that you can allocate to a long-term investment in equity and bond markets – at a level of risk you’re comfortable with – then it could potentially be a good time to consider investing.

Your private banker is here to support you and your family through any financial environment. Contact them to find out more.