Last week the Bank of England cut interest rates by another 1/2% to a 300-year low of just 1%. It’s the fifth month in a row that rates have been cut – falling from 5% in October to just 1% now.

Good news for those on a variable rate mortgage, but savers are going to be very demotivated.

So what should you do?

As always, your individual circumstances will dictate the best course of action, so make sure you speak with your independent financial adviser first, but in general:

Savers should consider investments with a higher rate of return People with tracker rate mortgages will benefit from falling rates – and could consider overpaying their mortgages and saving money in the long term. Borrowers with variable rate mortgages need to keep a keen eye on what their banks are doing – not all banks have passed on the Bank of England rates cuts to their variable rate borrowers. Despite the rate cuts from the Bank of England since October, the average standard variable rate has fallen by only 2 points. New borrowers or those moving their mortgages should weigh up the benefits of a variable vs. a fixed rate mortgage. Some fixed rates offers may have already hit their floors. People with mature or maturing bonds should check how their banks are handling them – some banks automatically roll mature fixed-rate bonds into accounts that can pay as little as 0.1%. Whether you’re a borrower or a saver, the difficult economic climate can make it equally challenging to ensure that you’re getting the best return available.

Many savers and investors have experienced a terrible time over the last 6 months due the drop in interest rates. Many pensioners have been subsidising their pension income with the interest generated from their life savings. A year ago pensioners would have been earning £5000 per annum off their savings of £100,000. With many of the banks dropping the interest rate to 0% on savings this has forced investors to eat into their capital.

The good news there are many investment products to choose from. It is now time that investors research different investment methods in order to get a more pleasing return and preserve their capital.

The best bet? There has never been a more urgent time to seek independent financial advice.

Copyright (c) 2009 Gareth Flanagan

For financial planning advice or information regarding growth on your investments, contact Gareth Flanagan at Principle First on 02871273030 or visit http://www.principlefirst.co.uk