Shares are tumbling, interest rates are at zero – what does it mean for you?

Smart Money: The four key things to watch for your finances

The picture in international markets is darkening: what does this mean for your household finances? Photograph: iStock

The picture in international markets is darkening: what does this mean for your household finances? Photograph: iStock

Your mortgage, your pension, your savings, your investments. The prospects for all these have changed significantly as the financial world appears to be turning upside down. Interest rates on many products are now zero, or negative, share prices have swung nervously and have been on a downward trend. So what do these big trends mean for your finances ?

THE CONTEXT

The economic crisis which hit in 2008 may be over but its after-effects linger on. During the crisis the world’s central banks cut interest rates to unprecedented lows to try to stave off a collapse into a cycle of low growth and even deflation – where prices fall. But since the crisis growth has been patchy, at best, across the industrialised world. And so interest rates have remained at rock-bottom levels. The US central bank -– the Fed – did manage to increase its key interest rates to close to 2.5 per cent. But this is just half the rate they peaked at in 2007 and because growth is slowing the Fed has now been forced to actually cut rates by 0.25 of a percentage point and there is talk of more to come. Meanwhile, the European Central Bank (ECB) has not been able to increase its base rate above zero and actually operates a negative rate for banks depositing overnight cash, meaning they pay the ECB. And now it, too, has said it will examine if it needs to reduce rates further and may do so in September.

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