There’s not been any indication the Bank Rate would go negative, however financial experts have speculated about the possibility following the coronavirus pandemic. In August last year, Bank of England Governor Andrew Bailey said there were not any plans to deploy negative interest rates in the coming months.
When asked whether the central bank would consider the measure next year, he told CNBC: “No, I can’t give you that because I would never give you a judgement on what monetary policy is going to be a year ahead before we get there.”
Mr Bailey continued: “What I can tell you is that other analysts are essentially right, in the sense of saying it is in the toolbox.
“But, there is no plan at the moment to bring it out of the toolbox and put it to work.”
Fast forward to February this year, and the Bank of England’s Monetary Policy Committee (MPC) wrote to banks to tell them to prepare for the possibility of interest rates turning negative.
It came as the MPC said they didn’t wish to signal this would definitely happen.
At the same time, the MPC voted to hold the Base Rate at 0.1 percent at the same time.
The report, published following a consultation with banks which was launched in September 2020, confirmed: “While the Committee was clear that it did not wish to send any signal that it intended to set a negative Bank Rate at some point in the future, on balance, it concluded overall that it would be appropriate to start the preparations to provide the capability to do so if necessary in the future.
“The MPC therefore agreed to request that the PRA should engage with PRA-regulated firms to ensure they commence preparations in order to be ready to implement a negative Bank Rate at any point after six months.”
It may not be something the MPC is looking to signal, but amid speculation about negative interest rates, savers may well want to know what it could mean for them.
Express.co.uk recently asked Finance Expert at Moneyfact.co.uk, Rachel Springall, whether interest rates could turn negative, and what it could mean.
“Savers might feel like interest rates couldn’t possibly go any lower, but they would be wrong,” Ms Springall said.
“In truth, the most flexible savings accounts could face further cuts should base rate move any lower or if savings provider’s decide that they want to deter deposits.
It could potentially mean savers face a charge on their savings account, similar to the various current account fees which some customers face.
“Savers in the UK are able to safely deposit their cash into flexible accounts without cost right now, but this doesn’t mean that we couldn’t see holding accounts that charge in the future, if we were indeed to move into the territory of negative interest rates,” commented Ms Springall.
“It’s a model that would confuse your ordinary saver of course, but some savings accounts could go down this path – similar to how some banks charge a fee on a current account.”
Should it happen though, savers are warned to exercise caution.
“If service or holding charges come into the savings market, then these will need to be considered by savers carefully and charges should ideally be monitored by an independent body,” Ms Springall said.
Amid a time of low interest rates, the finance expert shared some tips for accessing the best savings rates.
“Sign up to savings rate alerts and be sure to keep on top of any emails from your existing provider,” commented Ms Springall.
“Savings providers can change variable rates at any point, so consumers need to keep tabs on changes and move their money if they find they are on a poor rate.”