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Bank accounts: could interest rates fall further?

Published 27 June 2012 by

Could the interest paid on bank accounts fall even further? The base rate's been down at 0.5% for over three years now, but there are some signs that it could fall to 0.25% - or even 0%.

The head of the IMF (International Monetary Fund), Christine Lagarde, has said that the Bank of England should "reassess the efficacy" of bringing the base rate down to a new all-time low. The Governor of the Bank, Sir Mervyn King, said he hadn't 'ruled out' the possibility of doing that.

Some mortgage borrowers might be pleased to see that happen, but savers wouldn't. The average interest rate paid on an instant-access bank account rose by just 0.01% in April to 0.22%, so it's still nowhere near the rate of inflation.

In fact, now that inflation's come down a bit (to 2.8% in May), this actually makes it a bit more likely that the Bank will carry out some more quantitative easing (commonly called 'printing money') to try and improve the economy's health, although this could push inflation higher, which would basically mean that the money in people's bank accounts would be worth less.

A spokesperson for thinkbanking commented: "Savers everywhere are obviously concerned about the interest rate they're earning on their money, but it's important to remember that this isn't an issue for everyone.

"In many cases, the interest rate isn't the most important factor in choosing a bank account. People who regularly rely on their overdraft, for example, would probably be more concerned about the costs involved in doing that. Interest rates aren't the only way banks compete with each other: the other benefits an account offers can be much more appealing to customers."

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