There was talk this week from the Bank of England about Negative Interest Rates hitting the UK. In other countries, this is already happening. It’s worse news for savers, could be good news for some mortgage holders and make no difference to others.
Fix rate mortgages
If you are on a fixed-rate mortgage nothing will change, you will still be paying the same rate of interest, and yes, that means that the bank will be making more profit from you because obviously, they will be paying less interest than they are charging you.
Variable-rate mortgages
If you are on a variable rate mortgage check your contract, normally they have a minimum rate of interest, for example, base rate + 1% unless the base rate is less than 0 then the interest rate will be 1%. (Yet again, the bank makes more profit with a negative interest rate).
Savings & Pensions
Saving rates are bad at the moment as it is with a general rate of 0.1% if you save on a short term account or around 0.51% if you are saving in a long term account. Both rates are pretty bad. If the interest rate drops to negative it is unlikely the banks will start taking money from you based on what has happened In countries that have negative interest rates, Sweden for instance. However, you may find that they are entitled to, and with charges on your account, you could be better off taking the cash out and putting it under your pillow.
Pensions can also be adversely affected if they are not tied into stocks and shares. You can opt for a self-invested pension where you choose where your pension is invested, but if you do that you may as well just invest the money directly and take out the middle man. After all, they are charging you for the privilege.
What about buying stocks, shares, and cryptocurrency?
Even 5 years ago, buying stocks and shares was not only out of the reach of most people, but it was also complicated and fraught with danger. However these days anyone can buy and sell small amounts of shares. You don’t have to have a huge bank account, you can start with just £50.00. If you are new to all this, there are quite a few easy to use platforms out there. eToro I particularly like. Being able to buy just £50 of one share means that you can build a large portfolio of shares in different companies, cryptocurrencies, and other things. Even someone on a low income over time can build up their own share portfolio. This is incredibly powerful.
It takes more work than just leaving your money in a dusty savings account but you have the chance to make a lot more than 0.1% (you can also lose money of course as share prices go up and down).
I personally prefer to have a small investment in a lot of companies rather than having bigger investments in fewer companies. So I am happy to have a portfolio of 100’s of shares as it means that if one of the shares/currencies rallies hard I can put the stop up (see my last article about using stops) and maybe close that trade.
What about forex trading?
In my humble opinion, although I do forex trading myself, it is way more difficult than just buying a stock. With foreign exchange trading, you are trading one currency against another. They can suddenly move against you so you need to really know what you are doing. If you buy 10 shares in Apple, even if the price plummets, you still have 10 shares in Apple, if you are trading GBPUSD and sterling falls fast (which I’ve seen it doing) you may be stopped out by your broker. (you need to use stops on forex).
Be really careful and over time you should make some good money. Get it wrong and you could be badly stung. Always use a regulated broker who is covered by the FCA or the related authority in their country.
Summary
Check everything twice. Check your mortgage statements, find out what happens to your savings and be wise, remember, the banks are not your friends they need to make money from you.
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