Bank of England governor Mark Carney has indicated interest rates in the UK may start to climb off record lows at the turn of next year. Chris Williams, CEO of online advice service Wealth Horizon , offers tips to investors on how best to prepare for any hike.
1. Review all aspects of your day-to-day finances
Find out what you can realistically afford to put aside each month and make cut-backs where necessary in order to keep building your nest egg.
2. Time to ditch fixed income?
Interest rate rises are typically a signal of an improving economy, but many asset classes actually struggle in this environment. For example, fixed interest investments tend to struggle as cash starts to pay more interest. Now could be a good time to ensure your portfolio is well diversified.
3. To fix or not to fix?
With a rate rise looking more certain, a fixed rate mortgage will almost certainly be the preferred route for would-be or existing homeowners but given any rate rise is likely to be minimal, tracker mortgages may still offer better value for some time to come.
4. Consider currencies
Fluctuations in currency prices are closely linked to interest rate rises. While a soaring pound can be good for some investments, it will impact earnings of equities and other investments, so be mindful of the potential impact on your portfolio.
5. Cash still won’t be king
If you are looking to gain an income from your cash, it is important to remember that any interest rate rise will be marginal, and remains dependent on banks actually passing it on to savers. Consider investing your money rather than leaving it in cash.