Archive for February 2011

UK Interest Rates Could Rise Soon

February 24, 2011

The Bank of England Monetary Policy Committee member, Spencer Dale has now crossed the floor to joined Andrew Sentance and Martin Weale in the ‘raise interest rates’ camp. Although these three have explicitly expressed the need for an immediate interest rate rise, the MPC meeting minutes reveal that support for an interest rate rise is growing.

As Andrew Sentance’s group has grown, interest rate futures have moved up two points. This increase shows confidence in an interest rate rise. Some commentators have even predicted a May increase.

Inevitably economists get overexcited when this sort of news comes in. There are still some on the committee who still oppose an interest rate rise: Adam Posen has voted for an extra £50 billion of quantitative easing. The MPC will consider how the economy has performed in the first quarter of 2011 in order to decide whether the decline in GDP in 2010 was caused by temporary issues or deep seated economic problems. Only then will there be an interest rate decision.

Banks Accused Of Exploiting Customers Seeking Executor Services

February 24, 2011

By law you are not required to appoint a professional executor to carry out the wishes contained in your will. The costs incurred from using an executor can be expensive, on average costing between £3000 – 9000. However, four of the UK’s high street banks having been reproached for their approach to selling will writing and executor services.

The Office of Fair Trading has revealed that banks were pushing customers into using executor services when they were not explained alternative options or the costs that these services might incur.

Four Banks have agreed to carry out a review of their sales method for executor services in order that customers do not use these services unless they are in their best interests.

Not all the blame can be poured on the banks. Consumers must carry out research into wills in order that they save money and understand what is the best course of action for them.

Mervyn King Issues A Strong Warning To Borrowers

February 17, 2011

Although interest rates have been left at 0.5% for the past two years, Mervyn King has warned that things will be changing soon. The question of ‘When Exactly?’ is the real problem. Economists have made predictions for an interest rate rise ranging from May this year to early next year.

It is hoped that an interest rate rise would help combat inflation. There are worries that untamed inflation could result in higher wage demands and an escalating spiral of costs. The other problem is that those with savings are suffering at the moment due to record low interest rates leading to poor returns. An interest rate rise would cause problems for those with mortgages, but the fact is that those with savings outnumber those with mortgages by six to one.

It is important that those making long-term financial plans consider the potential for change in the markets over the coming years.

Rise In CPI Means That Most Savings Accounts Cannot Keep Above The Inflation Rate

February 15, 2011

Nowadays anyone looking to put some money away in a savings account to accrue interest will be sorely disappointed. There are now no standard instant access or fixed rate savings accounts that will match or beat inflation. The average saver needs to earn 5.0% interest on their savings so that they keep up with inflation but this is just not possible under current economic circumstances. CPI has now reached twice the government’s stated target and this situation is beginning to make the Bank of England look impotent.

Rising inflation is not just a problem for savers, those first time buyers with mortgages will be in trouble if the Bank of England suddenly reacts to inflation by raising interest rates. Pensioners are probably the worst hit as they have to suffer the combined effects of low interest rates and high inflation on their pensions.

As University Tuition Fees Increase, Parents Simply Have To Save More

February 9, 2011

Both Oxford and Cambridge Universities have announced that in order to provide the highest quality of tuition they will be raising their fees to nine thousand pounds per year. Where Oxbridge goes the rest will follow, so parents will have to save more if they want their children to obtain a university degree. The final quarter of 2010 witnessed a rise in savings levels. This was around the time that statements about rising tuition fees were published.

One problem for savers is that interest rates are at an all time low and inflation is expected to remain at around four per cent, resulting in poor returns on savings. The government has argued that special funds will be put in place to help the poorest who can no longer afford a place at university but this will provide precious little relief for those in the ‘squeezed middle’.

Only In America – The Credit Card With The 79% Interest Rate

February 8, 2011

Nearly 700,000 people in the USA possess a First Premier Bank credit card which charges a staggering 79% interest rate on borrowings. The cards are aimed at customers with bad credit ratings who simply cannot get a card anywhere else. Some have accused First Premier of exploiting poor people who simply cannot afford these sort of interest rates. The 2009 Card Act passed by Congress does not put a limit on interest rates charged by banks: it only prohibits the retroactive raising of interest rates.

First Premier claims to open only 50,000 accounts per month although they receive 250,000 enquiries per month. The bank’s CEO defended his company’s practices, arguing that: ‘If you have a bad driving record, you have to pay more and once your driving record has improved, your premiums will come down. When the cardholder’s credit score improves, they may start to qualify for more traditional types of credit card offers with better rates and less fees,’.

Credit Card Interest Rates Hit A Thirteen Year High

February 2, 2011

The Bank of England’s base rate may be set at a record low of 0.5% but this has not stopped the average credit card interest rate rising to 18.9%, the highest rate in thirteen years. Members of the British public are twice as likely to have plastic credit as people in any other western European country: This goes some way to explaining why Britons owe more than £52 Billion on credit cards.

These high interest rates would be understandable if the excess was channelled back into small businesses or loans for first time buyers, but mortgage approval rates have fallen. Some banks claim that the interest rates are a necessary precaution needed to cover bad debts as rising unemployment and pay curbs make lending more risky.

Critics have argued that the bank’s priorities are their partners’ bonuses and these exorbitant interest rates deliver the massive profit margins needed to pay them.