Martin Lewis on ‘extraordinary’ interest rates cut – and what you need to do now

At 7am on Wednesday 11 March the Bank of England cut interest rates to just 0.25% – their lowest ever level – with no warning.

But it didn't stop there – announcing new funding for small businesses and cutting the rate on its capital buffer 0% in a preemptive strike against the economic effects of coronavirus.

But while aimed at the economy overall, the fallout for personal finances will be significant – and founder Martin Lewis has been quick to offer advice for anyone worried about what it will mean for them.

“This is extraordinary, unprecedented economic shock therapy – interest rates as low as they've ever been for hundreds of years," Martin said.

"The fact the Bank feels the need to do this shows the level of seismic coronavirus tremors running through the nation's finances."

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Martin explained that the main aim was business – but that normal people would feel the effects too.

“The primary aim is economic stimulus. Reducing interest rates is an encouragement to spend and invest – it makes borrowing cheaper, and saving less attractive. And that's what they want – more money flowing through the economy," Martin said.

“I suspect this is primarily targeted at business, but it of course has a personal finance impact. While our first actions and thoughts need to be for the health of the nation's vulnerable – the impact on people's pockets can't be ignored."

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As a result of the changes some people will be quids in, while others will find themselves worse off.

“The financial winners are those on variable and tracker rate mortgages. They will see cost cuts of – very roughly – £25 per month per £100,000 of mortgage," Martin said.

"And while it'll take a week or two to factor through, it's likely we'll see the rate of new mortgage fixes drop too – meaning it will then be a very cheap time to remortgage."

Other borrowings will see little change though.

“Most loans, credit cards and other debts will likely be unaffected or only minimally affected because the Bank’s interest rate only plays a small part in their rates," Martin added.

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The losers look likely to be those with money in the bank, rather than borrowings from it.

“The losers are savers. Many who've worked hard to build up a nest egg will be holding their head in their hands at this news," Martin said.

"Savings rates have already been plummeting this year, and this will massively increase the height of the roller coaster fall.

“A rate cut has been expected, but not as big or quick as this."

However, if you act quickly, there's still time to grab the last of the better rates.

"As fixed-rate savings tend to be offered in tranches – ie, a firm will have planned to bring in £10million, until they fill that amount the rates won't drop – so quick movers may be able to bag top 1 or 2 year fixed-rate savings today before the rates fall," Martin said.

“For everyone else the advice is simple. Currently the average UK saver earns just 0.4%, while the best easy-access accounts pay 1.3%. All these rates will likely drop.

"Yet at the very least make sure your money is in the top payer, not the poorest.”

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