Base rate predicted to hold at 0.5% until 2014
The base rate has been stuck at 0.5% since March 2009, and experts are warning that it will have to stay on hold until at least the start of 2014 if the UK economy has any chance of recovery.
Savers have been anxiously watching savings rates continue to tumble, and this latest prediction has simply confirmed what they didn't want to hear - they are not going to improve any time soon.
So what are the alternatives? George Ladds, head of Investment and Pension Research at Fair Investment Company explains:
"There is no hiding from the fact that interest rates are low, and therefore, savings rates are poor. Those who plumped for a fixed rate last year or earlier may well be smugly watching rates fall as their cash continues to earn considerably better rates than anything on offer now. But that doesn't help those whose deals are coming to an end, or those who didn't fix and are looking for some way to beat inflation.
"If you are worried about your money losing its value, the first thing to do is to make sure you use your tax efficient ISA allowance, because with the cost of living at 5%, a basic rate tax payer needs to be earning 6.25% to keep pace and unfortunately, savings rates like that are just not available. The best ISA rates available are on fixed rate accounts - between 3%-5.5%. If yours is low, think about making an ISA transfer, which means switching to a better paying ISA account.
"But if you have already used your allowance and you want to stay in cash, your best bet is to lock your cash away for longer in a fixed rate savings account. Generally, the longer you are prepared to fix, the better the rate you will get. This is because although you are hoping your rate will continue to beat the base rate over the period, you take the risk that rates will go up and you will miss out. However, with predictions that the base rate is not going to budge until 2014, it might be worth the trade off."
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"If you are prepared to take a bit more risk, it is worth considering structured deposit plans. These are basically the sort of product investors go for when they are looking to take a bit more risk than with cash, but are not willing to go straight into full risk stock-market investing. They are capital protected plans but any income or growth is dependent on the performance of the stock market (usually the FTSE 100 Index).
"Income structured deposit plans are currently offering up to around 4.5% while growth plans can offer more - up to around 6% annually on kick out plans, between 10% and 15% on the maturity of three year plans and up to 30% on the maturity of five year plans.
"But the risk you take is that if the FTSE falls below a certain level, you won't make any money. However, you will not lose your initial deposit unless the counterparty fails, and even then, up to £50,000 is protected by the Financial Services Compensation Scheme (FSCS).
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"For investors willing to take a little more risk again for higher returns, income funds are worth consideration. Income funds invest in company bonds and are currently offering returns of between 5% and 8%, but in exchange for potentially higher returns, the risk is that the capital is not guaranteed."
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"In this time of low interest rates, investors have to understand that if they are looking for bigger returns, they will have to take more risk.
"Whatever you are planning to do, remember that the value of investments and the income from them can go down as well as up and that you may not get back the full amount you have invested. If you're in any doubt you should consult an appropriate Financial Adviser."