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Page 16: Financial: Interest Rates.

Take an interest in them!

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Interest rates rule the world. They govern whether you make money or lose it. Choosing an investment means first of all looking at the interest rate on that account compared with the others. Work out whether the rate is taxable and if it's Gross or Net, monthly or annual, and whether its fixed or variable.

Please read on.

Most new savings accounts get released with headline grabbing rates. 7% is a good rate at the moment, but then they can start to slide, slowly but surely as their marketing push relaxes. This strategy serves the financial industry well. New customers move over to this top notch account believing 5 years later that its still the best. You'll be lucky! Thats how healthy banking profits are made. Beat them at their own game, we say. ALWAYS watch the papers, teletext, adverts, our news page, anything to keep abreast of the latest products and rates because these rates change quickly. Watch out for the access stipulations on comparable accounts too. Some won't allow instant access while others only let you withdraw up to a maximum, especially through a cashpoint. Never let misplaced loyalty prevent you from switching your account: The banking industry exploits your good manners by rewarding you with less and less interest. Each time you are welcomed into Sprogget and Sylvester with a cheery hello think to yourself how many pounds that customer relationship just cost you.

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Interest rates on loans and mortgages and credit cards are ENORMOUSLY IMPORTANT. Some credit cards still have rates of 29.9 percent. Can you believe that? Base rates have never been lower, inflation is getting near deflation and these blood-suckers still manage to peddle their plastic WITHOUT a health warning. What's worse are the money lenders who operate in poorer areas where the proportion of people holding bank accounts is tiny. If you have a credit card balance that never seems to get smaller, compare the rate offered on your credit card with the rates on personal loans offered by banks, building societies and insurance companies. If there is a difference, consider changing the card debt for a personal loan. The regular payments also help considerably. Then try to cut up the old plastic before you're tempted again. Always check out the rates on credit deals. The rates will be higher and the amounts usually larger, so their effect will have more impact than those for savings accounts. Mortgages, by comparison are huge sums, so the smallest difference in rates can still mean big bucks. Shop around, work out the best rate, over the discount period stated in the offer and don't overlook it when deciding on a mortgage product to sign up for. Again, some of the best credit rates on the market will appear on our news page, as well as newspaper money sections and teletext.

Please read on.

Rates Rise to Curtail Consumer Debt

(Thursday 5th February 2004 news story)

The Bank of England has just raised its base lending rate to 4%, from 3.75%. The record levels of borrowing are to blame, with the average non-mortgage consumer debt at a scalpel blade thickness under £6,000. The rate was widely tipped to rise, the Bank opting for a modest 0.25% increase compared with a possible 0.5% hike.

UK to Spearhead World Economic Revival

(Friday 1st Febuary 2002 news story)

It is predicted that the UK economy will outperform rivals this year, with 2.1% growth compared to 1.4% for the eurozone and 1.2% for the US, according to a leading think tank.

The Institute for Social and Economic Research predicts a stronger rally in 2003, with the US growing by 3.7% and surpassing both the UK and EU at 2.6%. However, the Institute is less bullish on Japan, which is expected to fall 0.8% in 2002 in a second year of recession. It said the UK economy was performing better than others because of higher Government spending and strong consumer confidence sparked by lower interest rates.

Most other industrial countries are cutting back on public spending due to budget limitations. However, the UK has built up a surplus of £50bn over the past five years that could be used to fund future spending increases.

Consumer Boom Forces Rate Rethink

(Sunday 6th January 2002 news story)

The Bank of England is concerned about the surge in British consumer spending given the current context of global economic stagnation. The Bank's Governor Sir Edward George says personal debts are becoming dangerously high and unless consumer demand slows, interest rates will have to rise. The Bank decides on borrowing costs on Thursday. While a rise is unlikely, with house prices and spending racing, a cut has been ruled out by the City.

While Bank of England Governor Sir Edward George is talking of raising interest rates if spending fails to slow, the City has not given up entirely on the idea of one more cut. That would happen if the manufacturing slump deepened and spending slowed. Rates usually stay unchanged in January because of a lack of economic data on Christmas trading.

More evidence of the high street surge is due this week. On Monday, the British Retail Consortium reveals how well shops fared in December. John Lewis, the Waitrose supermarket chain and the Confederation of British Industry have already spoken of the December binge. Economists think the BRC will paint a similar picture. Next fashion group and jeweller Signet are also likely to talk of boom times in the days ahead. Following Nationwide's house price report showing a 1.9% rise in December and an increase of 13.8% over the last year, comes the monthly report from the Halifax on Tuesday and its quarterly housing market report on Friday. Both are likely to endorse the Nationwide's figures and its findings that we are witnessing the biggest rises since 1988, when the catastrophic housing boom left many trapped in negative equity. Burgeoning car sales from Reg Vardy, the car dealership group, are likely to show a big profits jump when its interim results are published on Tuesday.

Clearly Britain is experiencing a two speed economy, with manufacturing in recession on one hand and a high street boom on the other. The Bank of England, while torn between the two, policywise, would be wise not to react to either extremes. Fingers crossed, manufacturing will pick-up on the back of low rate stimulation and consumer spending will peter out. Other influences, perhaps from the United States, might provide a clearer yardstick upon which to base monetary policy. Meanwhile, back down to earth, those of us with mortgages or savings or both might want to take heed of Sir Edward's warning regarding rate rises.

Many people, whose opinions matter, predict a recovery in the U.S. later this year. If this happens and rates stay low, the market might threaten to become overheated, leading to rate rises very quickly. The whole thing can quickly turn on its head,'ve guessed it...stay in control of your finances and don't succumb to every Zero Percent card offer that comes through the letterbox. Always watch rates, on savings and debts, and scrutinise each bank statement. Get in control, with the Surgery and stay in control.

Inflation Plummets to Just 0.9%

(Tuesday 17th December 2001 news story)

The headline inflation rate, which includes mortgage payments, sunk by 0.7% in November to 0.9%, which is the lowest since July 1963. The key underlying rate, which excludes mortgage costs, was down 0.5% to leave it up a mere 1.8% on the year.

The Office for National Statistics said that lower petrol and oil prices and contracting seasonal food costs contributed to the inflation rate slowdown. Fresh vegetables were noticeably cheaper compared with November 2000 when the exceptionally wet weather inflated prices. Motoring costs also fell as used car prices reduced over the year. Insurance premiums have also been reduced over the year.

With inflation this low, there are will be pressure for the Bank of England to cut interest rates again when it meets in the new year. Mr George and his team will be rather embarrassed to be missing its stated target of 2.5 percent by so wide a margin, despite unforeseen events on this day three months ago. All eyes are looking Stateside for news on whether the Fed has decided to reduce United States interest rates. Any reduction there will force the issue here in Britain.

0.5% Off Rates!

(Thursday 8th November 2001 news story)

Base rates plunge once more by a larger than expected 0.5%, to 4%. This makes it 7 times this year that the Bank of England's Monetary Policy Committee has ruled for a cut in an effort to stave off recesssion. It comes in the wake of Tuesday's half-point cut by the US Fed. Their rates stand at 2%. The CBI was pleased but people are still spending freely and will be encouraged to spend more once their mortgage rates come down again. The city was less enthusiastic, many perceiving the cut as dramatic and foreboding of bad news to come. The FTSE-100 was up just 61 points.

The move was followed by a small series of similar rate cuts at mortgage lenders. First off the blocks was Halifax who cut their variable mortgage rates by an identical 0.5%. That's the attitude, Halifax! We'll let you know if any mortgage lenders are sluggish when it comes to following suit or if any cut their savings rates again. One thing's for certain: There's more to come, and we like mortgage cuts at the ...Surgery.

Rates Falling like Autumn Leaves

(Saturday 3rd November 2001 news story)

The unseasonally warm weather has left many trees and shrubs green and healthy. They seem to be hanging on to their leaves to make the most of a summer that doesn't want to end. Sadly, we wish we could see savings accounts holding on to their percentage points in the same way.

Cuts this week, made to accounts paying the better rates, were little short of brutal. Most were hacked by 0.5% while some, like Leeds and Holbeck's Regular Saver account, were chopped by 0.75%, from 6% to 5.25%. All this on the back of a series of serious rate cuts by all banks and building societies, far more than the cuts made by the Bank of England this year. These changes certainly keep us busy here at MoneySurgery.

Investors seeking a safe haven from "turbulent" equities are running out of alternatives in these darker days. Lets hope the cuts are pre-emptive of another Bank base rate cut this Thursday and that they don't use it as an excuse to cut once more. On the bright side, most new mortgages are cheap and new personal loans are becoming a little bit cheaper. Watch those rates, patients, don't stay with an ungenerous bank or building society, and batten down the hatches for winter...even if this is an Indian summer.

Halloween Horror Savings Accounts!

(Saturday 27th October 2001 news story)

Beware! These are Evil!

We've enjoyed showing you how high rates can get on certain credit cards in Thursday's article, below, so much that we have decided to put the spotlight on some Savings Account howlers. We have scoured the nation's sewers and gutters to bring you the finest examples of scary financial freaks.

When we had the idea to do this Halloween horror bag, we were genuinely surprised how many accounts on the market pay less than 2% gross. We estimate that about 50% of the 100+ we surveyed paid 2% or less.

These rates are gross, in more ways than one, and these rates are low. You've been warned.

Dog Savings Accounts

Company:Product:Access:Rate £1+:Rate £500+:
Clydesdale BankInstant SolutionInstant0.10%0.10%
Bristol & WestEasy Life SaverInstant0.10%0.50%
Derbyshire BSCash AccountInstant0.25%0.25%
Alliance & LeicesterInstant AccessInstant0.50%0.50%

Bank of England Cuts Rates.

(Tuesday 18th September 2001 news story)

The Bank of England has shaved a quarter point off its base rate, taking it to 4.75%. It was not as much as expected with the United States Fed and the European Central Bank both chopping their base rates on Monday by half a percent, to 3% and 3.75% respectively, in the wake of last weeks terrorist attacks. The Bank is believed to have waited until today to digest the latest monthly inflation statistics before deciding how to react and given the unexpected sharp rise in underlying inflation to 2.6%, today's move is seen by many as a half-measure. A quarter point cut was on the cards for October anyway. The London stock market seemed unimpressed, the FTSE-100 dropping 50 points to finish at 4848.70.

On the high street, business is slower with many shoppers staying away, more concerned with other things than spending spare cash. And who can blame them? A global recession now seems inevitable since last Tuesday's horrific scenes, turning the carefree shopper of the "consumer boom" into a spendaphobe, battening down the hatches. The continuation of this consumer confidence might just have held off a recession but now things have turned on their head.

A glimmer of hope may come from a bolstering of worldwide security, especially in terms of travel, provided we are all prepared to give up certain individual freedoms in exchange. A swift resolution of the bin Laden problem that leaves intact worldwide American support and that does not fuel extremism would boost industry and allay our own personal fears for the future. We are not in recession just yet.

Savings Interest Rates Move Lower.

(Sunday 2nd September 2001 news story)

Bank and building society interest rates have all moved down a notch this weekend by between 0.2% and 0.45% This is not a delayed reaction to Augusts Bank of England base rate reduction but an anticipatory move ahead of an expected British cut this month or next. Since last month's cut we have witnessed similar rate cuts in the US and Europe.

Again, savers deposit returns are being squeezed with the best Mini Cash ISA offering 5.75% Some accounts are barely protecting deposits against inflation (currently 2%) and don't look such a tasty alternative to our wayward stockmarkets. Savers have to shop around and check what they are getting on their accounts and compare with the best providers.

To forget about accounts, knowing that it's rate was a market leader when it was opened, is precisely how banks and building societies expect you to behave. They promote new accounts with advertising and high interest rates when they need to get new custom, then gradually lower the rate once the account is established. When questioned some months after opening it, many savers believe that their well-chosen savings account is still providing a market leading return. Unfortunately, many get a nasty surprise when the true rate is revealed. Leave the account for a few years and the account becomes "No longer offered to new investors". When this happens, the rate can drop to less than one percent, the investors becoming victims of their own misplaced loyalty.

So, read the Best Rates section of newspaper financial pages, watch the rates on bank and building society web sites or scroll down this page to the Best Interest Rates section of MoneySurgery MoneyNews, and be prepared to transfer to the latest hot account. An hour, once a month, could be enough to protect your savings.

Bank Minutes Reveal 6:3 Rate Cut Split

(Wednesday 15th August 2001 news story)

Three members of the Bank of England's Monetary Policy Committee voted against this month's 0.25% cut, fearing it would foster already strong consumer demand and fuel house price inflation. Minutes from the BoE's August meeting reveal that the Bank's two deputy governors, Mervyn King and David Clementi, voted along with Ian Plenderlith for rates to be held at 5.25%. Admitting it faced a "dilemma" at this month's meeting, the MPC said cuts were needed to help the UK's beleaguered manufacturers but with healthy consumer demand, the MPC stated a preference for a "gradualist strategy" instead of a bigger cut.

Headline Inflation Comes Down

(Tuesday 14th August 2001 news story)

The Headline rate of inflation has fallen by 0.3% to 1.6% in July, slightly more than economists predicted. The underlying rate of inflation, which does not take mortgage interest payments into account, also fell by 0.2% to 2.2%.

Chief Economist at the British Chamber of Commerce, Ian Fletcher, said, "This underlines our view that the greater risk to our economy is slower world growth rather than inflation." He continued, "The Bank of England has scope to cut rates."

This follows on neatly from yesterdays lead story, below, and quite clearly paves the way for a cut in rates next month. The MPC's minutes from their last meeting will soon be published, hopefully revealing the inner thoughts of Britain's economic pacesetters. The gloom still persists, here at the Surgery and, we believe, at the Bank of England. The MPC's meeting minutes will probably show their acute awareness that each rate cut further stimulates consumer endebtedness. Both Money Surgery and the Bank are hoping that consumer spending will cool off.

Factory Inflation Drop Fuels Further Rate Cuts

(Monday 13th August 2001 news story)

The likelihood of more rate cuts have improved after the latest factory inflation figures show declining material costs. Any reduction will probably lead to a reduction in retail inflation.

Input prices, the cost of raw materials and fuel, actually fell by 0.3% in july, compared with a year ago. This is the fastest decline for over two years. Similarly, output prices which measure the cost of goods leaving the factory, have increased by a mere 0.1%, representing the lowest increase since January 1999.

The Bank of England is torn between two stools: Helping British industry by lowering its base rate or taking the heat out of consumer borrowing and housing inflation by raising its rate. Any increase in headline inflation figures, possibly as a result of consumer spending, would usually be countered with an increase in base rates.

So, downward pressure on retail inflation through lower manufacturing costs might encourage the Bank to help industry with another rate cut, just as it did last month. As it stands, headline inflation is set to undershoot target levels set by the Bank and the government. Does this suggest that the economy is fully under control, we wonder?

Base Rates Cut

(Thursday 2nd August 2001 news story)

The Bank of England has decided to reduce their base rates by a quarter of a percent to 5% In an unexpected move, the cut was made to counter the economic downturn and was welcomed by business leaders and mortgagees. In its statement, the Bank said its decision was made to sustain domestic demand growth in the light of weaker-than-expected expectations of world economic activity, the persistent strength of sterling and weakening investment growth. The bank said this was contrasted with robust retail spending, household borrowing and the housing market remaining robust. David Page, economist at City stockbroker Investec, said: "This is a surprise move from the Bank of England and reflects a greater concern over the recovery in the US and a weakening in the Euro zone."

Money Surgery believes that the cut could increase the extraordinarily high levels of consumer borrowing and fuel the "unsustainable" house price levels, recently reported. Should inflation rise, will the Bank of England increase its base rates? A combination of increased unemployment, high consumer borrowing and a deflating housing market could mean misery for many. Many people are struggling to borrow up to 4 times their salary for a new home and a mortgage that seems cheap. However, mortgage interest rates have been, on average, around ten percent since the war, so the effect of a doubling of mortgage interest repayments for these home buyers could be devastating. Prepare for the worst, cut out debt and look at the underlying reasons for the Banks' shock cut. They are worried about the future of our economy.

Rates on hold

(2001 news story)

The Bank of England has decided to leave its base lending rate unchanged at 5.25%. This will disappoint many labour supporters who were hoping for a cut just before the election to boost the feel-good-factor among the electorate. Many commentators, particularly those who lean to the right, would have interpreted a rate cut as compromising the neutrality of the Bank and the members of the Monetary Policy Committee would have been well aware of this. So it probably would have taken particularly extreme economic data to force a change in the rate. As it turned out the news was contradictory with consumer borrowing and spending at ever higher levels compared with distinctly downbeat trading results and directors' pessimism.

However your vote is cast, we hope that you take into account the various party policies concerning tax and savings and the benefit system. In five years time we might all be looking at a brave new European future too. How well have Labour run the economy? What about Stealth Taxes? Do you want more taxes for better public services?
Whatever...don't forget to use your vote!

Rates Drop 1/4 Percent in UK and EuroLand.

(2001 news story)

No prizes for guessing that the Bank of England would adjust the lending rate again for the third time this year. It did just that, down 0.25% to 5.25% in the hope that our slowing economy can be spared a recession. It wasn't as much as many observers expected but it leaves the door open for further cuts this summer...before the General Election perhaps. What many observers weren't expecting was a similar 0.25% cut from the European Central Bank, down to 4.50% and only the second rate cut in its two year history. Perhaps the final straw as far as ECB leader Wim Duisenberg is concerned was the depressing German economic data which suggests a sharper than expected slowdown there. Lets hope that mortgage rates go down quickly, not forgetting that most savings rates went down considerably in the last couple of weeks.

Rates set to drop again on Thursday

(2001 news story)

The Bank of England looks set to cut interest rates when it meets this week as evidence mounts that the UK is facing a slowdown, economists predicted today. The possibility of a cut looked increasingly likely as figures out last week revealed the manufacturing sector was contracting at its fastest rate for two years, with the service sector also slowing.

City experts are now split over whether the bank's monetary policy committee will reduce rates by a further 0.25%, or a more aggressive 0.5% when it meets on Wednesday. The base rate is currently running at 5.5%, following two cuts already this year, reducing mortgage rates to their lowest levels since the 1960s. David Smith, an economist at Investec, said the MPC may not go for a full 0.5% cut as this could cause panic. He said: "It is actually a slowdown in the UK. It is no longer a concern that we may be hit, it is now actually a slowdown situation. "We would be looking for a cut of 25 basis points in May and a further 25 points in June." Alex Scot, of Barclays Stockbrokers, also predicted the MPC would cut rates. He said a 0.25% cut would be preferable as it "held out the promise of further cuts further down the line".

EuroRates Held.

(2001 news story)

Surprise, surprise. The European Central Bank has left its base rate at 4.75%, continuing its position as the only central bank not to lower interest rates this year. Perhaps there will be some questions asked at the forthcoming G7 summit this weekend in Washington.

US Rate Cut Shocker.

(2001 news story)

The US Federal Reserve has cut its interest rates by half a percent to 4.5%. In a surprise move, it added that risks to the economy were still to the downside. It was the fourth rate reduction this year.

Stock markets across the world welcomed the news by rising significantly. By 19:00 GMT, the Dow Jones was up 420.20 to 10,636.93, which is not too far away from all time highs reached last year, and all this in an environment of supposed doom and gloom. The UK markets also rose along with European markets. Where will this end though? Are we all to have base rates as low as Japan's near zero rates?

Pay rises might prevent further rate cuts/ECB holds Euroland rates Shock!

(2001 news story)

Wages have risen faster than inflation according to the latest data, which could influence the Bank of England when it next decides on rate cuts in May. This conflicts with the weak inflationary pressures mentioned in the next article. We'll report on the next meeting of the Bank of England's Monetary Policy Committee next month.

Wim Duisenberg defended holding base rates at the European Central Bank saying that reasonable growth is still expected from Europe in the near future. However, most other analysts were puzzled, pointing to conflicting statements made by other prominent ECB strategists alluding to a likely rate cut. While the US and the UK have lowered their respective rates considerably in 2001, the ECB has held its rates to the dismay of many people hoping for a boost to the regions economy. Such odd tactics do nothing to enhance business confidence with many people commenting that the ECB is risking flirting with recession by gesturing that they are truly independent.

Weak Inflation could mean more Rate Cuts.

(2001 news story)

Inflationary pressures remain utterly flat, according to the latest figures, which could prompt further rate cuts in the coming few months. Factory gate prices were unchanged from Feb to March, taking the annual rate to 0.8%, the lowest for two years. The cost of raw materials and fuels was also weaker than expected, down 0.9% in March.

With Bank of England Chairman, Eddie George already having to contemplate writing an open letter to Gordon Brown to explain why headline inflation has undershot target figures, the Bank's Monetary Policy Committee may find a rate reduction irresistible again in May.

Rates Cut Once More.

(2001 news story)

The Bank of England took another quarter point off its base lending rate, from 5.75% to 5.5%. It mentioned the Foot and Mouth crisis and global economic slowdown as causes for concern. It is the Bank's second cut this year and brings the base rate down to the lowest levels since the sixties. Other banks and building societies are expected to reduce their lending rates to suit, unfortunately, this also applies to savers who will continue to see their interest rates withering away.

ISA Confusion.

(2001 news story)

The average consumer is virtually clueless when it comes to investment products according to a new survey of 2000 people by Alliance and Leicester. Despite a barrage of advertising highlighting the need to maximise ISA subscriptions before the end of the tax year, more than 50% could not link the term "ISA" with Individual Savings Accounts. Just 10% recognised a maxi-ISA while 17% recognised a mini-ISA. Worse still, a sizeable number of people with specific saving and investment products had no idea what the product was that they invested into.

At Money Surgery, we like ISA's. They offer good 6 to 7% annual returns at a time when stock markets find their reverse gears. To help you out, we have a page that sums up ISA's in clear language and incorporates the latest budget rules from the Chancellor of the Exchequer. Hand-stitched by our busy surgeons, its called How to...Understand ISAs.

Please read our other pages.

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