How do Economic Changes Affect Your Savings
The UK economy has faced some difficulties over the past few years with the COVID-19 pandemic, ongoing conflicts and a cost of living crisis having a huge impact on it. These challenges have led to product price rises, changes to the housing market and fluctuating interest rates.
These economic changes can all have big impacts on your personal finances, making it more and more difficult to save for the things you want. 2023 was a particularly tough year for personal finances with over one-third of British adults having little or no savings.
If you’re someone who wants to learn more about how economic changes affect your savings, our guide can help. We’ll take a look at the important factors that influence savings and how they’re affected by economic changes. Continue reading below to become more informed about savings in 2024.
What are Interest Rates?
Interest rates are an economic instrument that tells you how high borrowing costs are or how much you can be rewarded for opening a savings account with your chosen bank or financial institution.
If you plan on borrowing money, you’ll typically have to pay interest rates on top of the amount you get. So, when interest rates are high, you’ll pay more for a loan than when they’re lower. That’s why loans can be more popular in times of low interest rates
Alternatively, if you open a savings account, the interest rate will be the amount you make on top of the amount you’ve invested into the account. This means you’ll earn more money when interest rates are high. You can usually opt to have your interest paid in either monthly instalments or in one lump sum at the end of an agreed period of time.
How do economic changes impact interest rates?
How well the economy is performing is a driving factor behind interest rates. The economy is subject to change at the drop of a hat, however, which means your savings could be impacted if something causes the economy to underperform. Common reasons for economic changes include:
- Supply and demand for money
- Inflation rising
- Government changes or loss of confidence
- Stock market crashes
If you’re worried about fluctuating interest rates, you may choose to put your savings into fixed rate bonds. This type of savings account means you can have peace of mind that the interest won’t change throughout the time it’s open.
As you can see, there’s a lot that can impact the economy, which in turn will affect your personal finances. Staying aware of the potential changes that could impact your money can help you ride the harsh economic headwinds that the UK population could be facing.
