Episode 436 - On this week's episode we look at Vanguard's latest offering—a managed ISA. Is it any good and how does it compare to what's already out there? Andy then looks at the latest cashback apps that are innovating the space and might even tempt those who shun traditional cashback sites. Finally, following the Bank of England's decision to keep the base rate at 5.25% I explore whether interest rates have hit their peak. I then discuss why rates are unlikely to fall as quickly as consumers hope and what that means for savers and mortgage holders.
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Abridged transcript - MTTM podcast episode 436
Vanguard Managed ISA
In the first section of the podcast we discuss the new Vanguard Managed ISA and how it compares to other options in the marketplace.
New Cashback apps
In this part of the show we look at the new innovative cashback app from JamDoughnut alongside the news that budgeting app HyperJar has laucnhed instant cashback gift cards. We explain how they both work, the pros, the cons and who might benefit from using them.
Have interest rates peaked?
Swap rates have been telling us that the market had decided way before the latest Bank of England decision that interest rates were near their peak.
But even if this is the peak, what is more important for consumers is how long we remain there. The worry is that most consumers seem to believe that rate cuts will now be around the corner, but they are probably getting ahead of themselves. Swap rates are implying that the base rate will be near 5% for the whole of 2024.
Of course, markets are often wrong. For example, at the start of the year the market was predicting rates would peak around 4.5% and yet here we are.
However, even the Bank of England acknowledged, in its meeting minutes today, that rates may have to remain high for an extended period of time, and it also did not rule out further rate hikes if inflation is persistent.
If we assume interest rates have hit their peak then the best savings account deals are likely behind us. We’ve already seen evidence of the best savings rates dropping. So savers should move to secure the best rates whenever possible. While savings account interest rates were slow to reflect the rise in the Bank of England base rate, you can be sure that they won’t be as slow to reflect reality on the way down, whenever that day comes..
Mortgage borrowers coming to the end of their fixed-rate periods now have a conundrum. Long-term fixed rates (5 years) have fallen in recent weeks but the best 2-year fixed rates are still around 5.3% (on a 60% LTV). The average rates are much higher.
The takeaway is that borrowers shouldn’t assume mortgage rates will be significantly lower in two year’s time than they are now. It’s why it’s more important than ever to get professional mortgage advice to consider all of your options. This could include tracker and offset mortgages and not just fixed-rate deals. But with rates at elevated levels we are starting to see lenders trying to tempt borrowers with low interest rates but with associated eye-wateringly high lender fees. Mortgage holders need to consider the full cost of their mortgage and if rates remain high for an extended time we might see more of these types of deals. Things have gotten more difficult in recent months for those looking to remortgage.
And if people are due to remortgage at some point in 2024 then they should prepare their finances assuming mortgage rates will remain elevated. That could include building a cash buffer ahead of time, while still on their historic low mortgage rate.
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