Savers and financial consumers have been impacted mentally by coronavirus according to new research. New insights from Janus Henderson Investment Trusts revealed that savers stashed away £77billion in cash away in the first six months of 2020 in fearful response to the pandemic.
In total, £1.5trillion is now put away in savings accounts, which spreads across all kinds of ISAs and current account.
This could be problematic in the coming months as analysis from the organisation revealed that interest rates will likely fall to below 2017’s record-low rates.
James de Sausmarez, a Director and Head of Investment Trusts at Janus Henderson, revealed his pessimistic view of what savers are in for: “UK savers are squandering the opportunity to earn tens of billions of pounds extra in income on their savings.
“In my view, interest rates are set to stay low for a very long time, so there is no light at the end of the tunnel for cash.”
As it stands, the base rate is set at 0.1 percent, the lowest it has ever been.
This rate affects retail banks across the country who tend to follow what the central bank sets.
The base rate cannot be reduced much more but some fear that negative interest rates may be introduced.
This could have profound effects on the economy and on the more extreme side of things, it could result in banks charging their customers interest to keep their cash with them, as opposed to banks paying interest at all.
On September 17, the Bank of England will announce their next base rate decision and they have acknowledged that negative rates could be considered.
Andrew Bailey, the Governor of the Bank of England, recently addressed the Treasury Select Committee and confirmed the following on negative rates: “It’s in the box of tools – we’re not planning it at the moment.
“We’ve got no plans to use it imminently, but it is in the box.
“If it was the right thing to do, then the case for bringing it out of the box would be strong.”
Cash and savings are not the only financial assets that will be impacted by negative rates, as mortgages, pensions and investment instruments can also be altered.
In August, Andre Megson, the executive chairman of My Pension Expert, spoke with express.co.uk about how pensions (specifically, generous final salary schemes) could be affected by negative rates: “Negative interest rates will cause consumers many headaches – especially when it comes to pensions.
“Final salary contributions will become extinct, as companies will simply be unable to afford them.
“This would be because the pension liabilities – the amount of money a company has to account for in order to make future pension payments to employees – would skyrocket.
“It’s likely that we’ll see most pension schemes take on a defined contribution model.”