Personal Finance | 8 November 2024

What to think about when interest rates drop

An interest rate cut is an important time to review your wealth plans because it’s a moment that presents opportunities as well as the chance to reassess your risk appetite and short-term savings.

Below, we provide some options and talk through some of the key questions that might be on your mind following the Bank of England’s decision to cut the base interest rate from 5% to 4.75%. If you’re a Coutts client, your private banker is here to help you navigate these options and more. They’ll talk you through the implications of lower rates and outline the pros and cons of any action you’re considering taking. When you’ve decided what you want to do, they can take it from there and do all the work arranging your finances for you.

Discuss what’s best for your wealth with your private banker.

 

REACH OUT TO THEM NOW TO DISCUSS HOW BEST TO PLAN YOUR FUTURE

Savings and Income

  • How could my savings-based income be impacted?

    If you draw an income from your savings, this is likely to go down if 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.

    If you hold a pension, you could look at drawing down from it or securing an annuity which could provide you with a guaranteed income.

    Criteria apply.

  • 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 period of time and come with varying degrees of risk, designed around your goals.

    A bond portfolio could also be an option and could perform well as bonds have an inverse relationship with interest rates.

    What’s most important is identifying your needs and adjusting your portfolio options – your private banker is there to help.

    The value of investments can fall as well as rise and you may not get back what you put in. Past performance should not be taken as a guide to future performance. You should continue to hold cash for your short-term needs. Eligibility criteria and T&Cs apply. Fees and charges may apply.

Cash and Liquidity

  • Is instant-access savings still a good idea?

    An instant access deposit savings account is a great way to keep your money working and have access to it whenever you need it – but it is likely to earn less interest if there are rate cuts. So, it might be time to consider other saving options or investments. However, if you want the ability to access your cash savings at any point, then an instant access deposit could still be your best option.

  • How much should I keep in cash savings?

    At least 4 months’ worth of your essential expenditure could be considered a prudent amount to keep in accessible cash savings. Even if rates do go down, having this cash to hand for any event or outcome will be important.

  • 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 growth for investments held in equity markets or bonds – so putting your extra cash to work over a longer period, at a risk level of your choosing, in an investment portfolio 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.

    Criteria apply.

Borrowing

  • Is now a good time to assess my mortgage options?

    If you’re looking at a mortgage or considering remortgaging your current deal, then your private banker can talk through what might be best for your situation and potentially help you make the most of a lower rate environment.

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

    We’re able to offer eligible clients investment backed loans if they do not wish to sell their investments. We’re also able to offer bespoke loans against commercial or 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 to the speed of set up and low fee costs of these loans but be aware 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.

    How a bespoke loan grew a family's property portfolio

  • Should I remortgage?

    Lower rates might be a good time to assess your mortgage options. A conversation with your private banker to work out the best option could be really valuable. 

    How we can help clients with super prime property purchases

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

Investing

Your private banker is here to support you and your family through any financial environment. 

 

Reach out to them now to discuss how best to plan your future

 

Please note, the products mentioned are illustrative of potential client options and do not constitute advice. 

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