The UK’s decision to exit the EU has raised questions about pretty much everything. Though it is not possible to predict the impact of this vote for future, it is a decision that will bring change for currencies, trade rules and the status of UK markets and regulations. This transition may take several years to come into full effect. So what does this mean for your savings?
Are savings fully protected?
Your savings are protected by the Financial Services Compensation Scheme, as they were before referendum vote. This is the compensation fund of results backed by the UK government.
Under this scheme, the first £75,000, or £150,000 (if held jointly) of your savings will be refunded to you within seven working days in the event of a UK bank of building society failure.
One cause for concern for some of you is the fact that the underlying savings safety guarantee is an EU rule. However, the EU only dictates the amount of deposit protection that we have.
The process of leaving the EU is likely to take at least two years and it’s possible that these limits may undergo review in the event of a formal exit, however, you will be given notice.
There is no need to withdraw cash from any bank or building society covered by this deposit guarantee, whereas cash stored under the mattress is rarely insured
As soon as it was announced the UK was to leave the EU, the value of the pound began to plummet, at one stage is was down by 10% to its lowest level since 1985. This is likely to have a knock- on effect, meaning; buying goods or services from other countries will become more expensive, meaning inflation in will be higher.
Your house price
Even before the vote, the International Monetary Fund (IMF) was warning that Brexit could cause a sharp drop in house prices.
The Treasury has said house prices could be hit by between 10% and 18% over the next two years. It could be good news for first-time buyers, but not so great for existing homeowners.
Home buyers should still look to the longer term. Housebuilding is not keeping up with demand, and unless mortgage rates rocket, that could mean upwards pressure on prices resumes once the dust has settled.
Hundreds of thousands of Brits who have retired in the Eurozone are at risk of losing the inflation proofing on their state pension following Brexit.
Under existing rules, anyone who retires to a country within the European Economic Area has their state pension uprated by the “triple lock”. It means that the state pension rises every year by the highest of price inflation, earnings growth or 2.5%.
During the referendum campaign, the ex-prime minister David Cameron said the so-called “triple lock” for state pensions would be threatened by a UK exit.
If economic performance does deteriorate, the Bank of England could decide on a further programme of quantitative easing (QE), as an alternative to cutting interest rates which currently stand at 0.5% This would lower bond yields, and with them annuity rates. So anyone taking out a pension annuity could get less income for their money.
What can you do?
If you’re prepared to tie cash up, consider today’s best-fixed rates while they last. A combination of high-interest current accounts, or a mix of savings bonds of different durations, could also be a solution.
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