Interest rates, tax tips and shingles

The big news this week is interest rates were held steady at 5.25% (although 2 out of the 9 on the Monetary Policy Committee voted for a reduction).

Despite inflation hitting the 2% target rate in May, the Bank of England is playing a cautious hand. Wage inflation is sticky as is the rate of inflation on services. They also avoid getting involved in all manner of political hoo-ha if they were to cut now, with parties either claiming their effectiveness (“Yay, well done us, we got rates down”) or shouting about interference and bias (“How dare you cut rates and give the Tories a veneer of glory?”).

The next meeting is in August, by which time we could potentially see the first fall since the Bank started the squeeze in December 2021, when rates were an almost unimaginable 0.1%.

Things to consider

If you have more credit card debt than you are comfortable with, consider a 0% balance transfer card to keep interest repayments low. Barclaycard, Tesco Bank and Virgin Money have current options worth checking out.

As for mortgages, the rates remain higher than those coming off fixed-rate deals would like. However, holding our breath or putting our heads in the sand isn’t an option – the average standard variable rate is currently higher than 8% 🤢 (according to Moneyfacts), so rolling off your fix without a plan is a bad idea. Rates are expected to fall this year in August or September, but any fall will be gradual.

As for student debt, it’s heavier than it’s been for a long time. Although I tend to think of this as a deferred tax rather than ‘bad debt’, the Student Loans Company has released data showing that more graduates are repaying loans as wages tick up, and the interest rate has increased to over 7% this academic year. The average outstanding debt is £48,470 in England and average annual repayments are £1,170. Those students who started in September last year or later will need to repay their loans for up to 40 years before the remaining balance is written off, rather than the previous 30 years as it used to be.

And from debt to savings...

On the other side of the scales, if you have cash, make sure you're getting the best rates and consider locking in now if you can. Remember your Personal Savings Allowance – £500 tax-free interest for higher rate taxpayers and £1,000 for basic rate taxpayers.

If you’re going to exceed this, then consider an ISA or investigate UK bonds (or ‘gilts’), which you won’t pay Capital Gains Tax on outside an ISA. Hargreaves Lansdown’s website has helpful information on these which aren’t as hard to get your head around as many fear.

A gilt is just an IOU to the UK Government. So, if you bought the Treasury 0.25% 31/01/25 gilt today, it would cost you about 97.64p, and you know you would get back 100p on 31st January next year. With interest (a ‘coupon’) paid at 0.25% too. And the capital gain (100p – 97.64p) would not need any tax paying on it. Worth a sniff from higher rate taxpayers who have maxed out their savings allowance and ISAs.

Cash ISAs are now the fastest growing part of the savings market, with various deals around of more than 5% – check out Trading 212 or Plum. I suspect any new Government will fiddle with Capital Gains Tax and so using our ISAs is vital.

Have a good weekend everyone. I’m just back from a quick post-GCSE trip to Northern Spain with my son which was amazing, even if I got the dreaded call from the school half-way though. “Oh hi, your daughter has shingles, could you come and pick her up please?” Fnaaaaagghhhhhhh! Why does it always happen the second you dare to book a few days away??? I came back to the UK to collect her, and then later, as I scooped up the dog, his walker triumphantly told me that “his **** glands need a squeeze”. Back to earth with a bang.

Inevitably something will go wrong this weekend as I’m heading to the Isle of Wight festival to bounce around to the Prodigy, and pretend that I am still 30. Wish me luck everyone.

Holly

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