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BOE gives more bad news for expat savers and investors
| Published: | 9 Jun at 6 PM |
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In spite of rumours that the Bank of England Monetary Policy Committee were softening on the base rate, the June decision to retain it at 0.5 per cent is more bad news for expat investors and savers.
Investors and savers may not realise that the BOE base rate isn’t the only determining factor in product providers’ fixed rate savings interest rates. In reality, rates over the last five years have fluctuated considerably, due to swap rates and competition between providers.
It’s obvious to most savers that fixed rates aren’t tied to the BOE base rate, but determining the movements of the swap rate, the amount banks charge each other on set period borrowings, is more difficult. Also, the number of offshore banks offering fixed rate deals has dropped over the last several years, reducing competition in the field and giving those remaining no reason to offer good rates.
For example, two years ago, offshore banks were offering anything between 4.5 and 3.5 fixed over three to five years. Nowadays, the best rates on offer are between 2.03 and 1.6 per cent on a five-year fix, leaving many expat savers tempted to transfer their cash to the Bank of Under the Bed.
Once most offshore banks have closed their doors and fled back to their UK parent companies, there’s not much chance of a more competitive rate in the future. Inflation is on the rise in most popular expat destinations, and the UK government’s present threat of withdrawing personal tax allowances from overseas UK retirees looks be creating the perfect storm for retirees.
Should the government proceed with its plan, those on frozen pensions will lose around 20 per cent of whatever they now receive, causing even more hardship. The worst scenario is that, having finally exhausted their capital reserves after being unable to get a decent rate of return for their savings, many thousands will be forced to return to the UK and throw themselves on the dubious mercy of the state.
Investors and savers may not realise that the BOE base rate isn’t the only determining factor in product providers’ fixed rate savings interest rates. In reality, rates over the last five years have fluctuated considerably, due to swap rates and competition between providers.
It’s obvious to most savers that fixed rates aren’t tied to the BOE base rate, but determining the movements of the swap rate, the amount banks charge each other on set period borrowings, is more difficult. Also, the number of offshore banks offering fixed rate deals has dropped over the last several years, reducing competition in the field and giving those remaining no reason to offer good rates.
For example, two years ago, offshore banks were offering anything between 4.5 and 3.5 fixed over three to five years. Nowadays, the best rates on offer are between 2.03 and 1.6 per cent on a five-year fix, leaving many expat savers tempted to transfer their cash to the Bank of Under the Bed.
Once most offshore banks have closed their doors and fled back to their UK parent companies, there’s not much chance of a more competitive rate in the future. Inflation is on the rise in most popular expat destinations, and the UK government’s present threat of withdrawing personal tax allowances from overseas UK retirees looks be creating the perfect storm for retirees.
Should the government proceed with its plan, those on frozen pensions will lose around 20 per cent of whatever they now receive, causing even more hardship. The worst scenario is that, having finally exhausted their capital reserves after being unable to get a decent rate of return for their savings, many thousands will be forced to return to the UK and throw themselves on the dubious mercy of the state.
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