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Low interest rates `could force savers into riskier investments`

10/03/2009

Savers could find themselves tempted by riskier investments as interest rates fall to zero on almost half of all savings accounts.

Following yesterday`s drop in the Bank of England`s base rate - which took it to an all-time low of 0.5% - nearly 50% of the available savings accounts will offer no interest whatsoever on savings, The Times reports.

`Returns on instant access savings accounts have collapsed in the past six months`, The Times states, `from an average of 3.71 per cent to 0.36 per cent, costing someone with £50,000 in savings £1,600 a year in interest.`

"Low rates on cash accounts are encouraging savers to consider alternatives," said Adrian Lowcock, of Bestinvest, a financial adviser, "but many do not understand the risks. Many savers are investing in corporate bond funds because they pay an income of 5 per cent or more, but these investments are riskier than cash due to the possibility of companies defaulting on payments."

"Savings are an important part of financial management," said a spokesperson for Debt Advisers Direct. "Having some money in the bank can help people cope with financial challenges - whether that means losing their job or financing a major purchase - without going into debt.

"However, it`s vital that they understand the risks. In many cases, it`s better to save in a way that offers lower interest but comes with a guarantee, rather than higher-interest, higher-risk investments."

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Debt Advisers Direct offer free debt advice and a range of debt solutions, including debt management plans, debt consolidation loans and IVAs (Individual Voluntary Arrangements).

Consumers took on more mortgage debt in July 26/08/2010 - Consumers took on £2bn more mortgage debt than they repaid Debts called in by parents 26/08/2010 - According to research, `the bank of Mum and Dad` is Teenagers `scared of debt` 19/08/2010 - Nearly two thirds of teenagers are `scared` of debt, according Rising household costs could pressure people in debt 10/08/2010 - The UK may be about to see a rise in