What have rock-bottom interest rates meant for you?

On March 7, the Bank of England base rate will have sat at a record low of 0.5% for four years.

14:24 08 March 2013

On March 7, the Bank of England base rate will have sat at a record low of 0.5% for four years. But while borrowers have been reaping the benefits, for savers, the low rate has been one big headache.

The introduction of the Funding for Lending Scheme (FLS) last August, which provides cheap funds for banks to lend with, has only exacerbated the situation. While mortgage and loan rates have tumbled, savers have been punished further as banks no longer feel the need to offer attractive savings rates. 

 

Here, we take a closer look at the winners and losers of rock-bottom interest rates. 

 

The Winners 

 

Mortgage borrowers 

 

If you're hoping to get onto the first rung of the property ladder or you're looking to move further up it, now's the time to do it as mortgage rates are the lowest they've ever been. 

 

According to our data at MoneySupermarket, average two-year tracker rates have hit a low of 2.5%, and are now 0.81% below their level in March 2009. The average cost of fixed-rate mortgages has also fallen to record lows of 2.34% for a two-year term and 2.89% for a three-year term - a drop of 1.45% and 1.63% respectively. 

 

Of course, the very best rates are still reserved for those with a large deposit. Those who can stump up as much as 40% of the property price can take advantage of rates as low as 1.89% with Chelsea Building Society's two-year fixed rate mortgage which has a £1,695 fee. 

 

But those with deposits of just 10% can still get their hands on some cracking deals - Chelsea Building Society offers a two-year fix at 3.69% with a £1,695 fee, for example. 

 

To compare how these mortgage deals stack up against their competitors, visit our mortgages channel. 

 

Those in the market for a personal loan 

 

Record low rates are also benefitting anyone after a personal loan - particularly for medium-sized borrowing of between £7,500 and £15,000.

 

Derbyshire Building Society, Sainsbury's Bank and Clydesdale Bank all offer an annual percentage rate (APR) of 5.1% on borrowing of this size. This compares favourably to the top rate of 7.9% APR four years ago. 

 

Credit card users 

 

Anyone looking to transfer debt across from one credit card to another is also benefitting from lengthier 0% balance transfer deals, making it much cheaper to borrow. The current average (across the top five cards in the market) stands at 24.4 months, compared to just 14.7 months in 2009. 

 

Both Barclaycard and Halifax sit at the top of the balance transfer best-buy tables, offering 25 months interest-free - but watch out for the transfer fees (of 2.9% and 3% respectively). 

 

The Losers 

 

Savers 

 

Savers have, unsurprisingly, felt the impact of the falling base rate more than borrowers. Savers have every right to feel aggrieved, given that the average interest rate on easy access savings accounts has plunged from a high of 3.09% in September 2011 to 1.93% today. 

 

Easy access cash ISAs haven't fared much better, falling from a high of 3.29% in April 2009 to the current 2.43%. 

 

The only way to get a better rate of interest is to be a little more inventive with where you stash your cash and be prepared to tie up your money for a number of years. 

 

For example, you can earn a fixed AER of 3.60% for five years with AgriBank which is a Maltese-based bank dealing in the agricultural industry. However, your money won't be protected by the UK government's Financial Services Compensation Scheme (FSCS). Find out more in Harriet Meyer's article.

 

For further tips on how to wring more out of your savings, have a read of Laura Howard's article. 

 

Mortgage borrowers 

 

It may surprise you to see mortgage borrowers on the list of losers as well as winners. But while many have benefitted from low interest rates, others have lost out. 

 

Clare Francis, mortgage expert at MoneySupermarket, explains: "On the face of it, borrowers are the winners of the low interest rate environment, with mortgage rates falling to an all-time low and the number of products available increasing by 37% over the last seven months as a result of the Bank of England's Funding for Lending Scheme. 

 

"However, this doesn't tell the full story as many borrowers have been locked out of the market for much of the credit crunch due to falling house prices and the reluctance of lenders to lend, particularly to those with smaller deposits." 

 

Raising a deposit large enough to buy a property is still preventing many people from getting onto the property ladder. With figures from Halifax pegging the average first-time buyer deposit last year at a whopping £27,984, it's no wonder that scraping together a sufficient deposit is an impossible task for many. 

 

But even if you do manage it, you've then got to find more spare cash to pay the mortgage arrangement fee. These fees have become increasingly expensive, with some as high as £2,000, which in turn means it can actually work out cheaper to choose a mortgage with a higher rate of interest but a lower fee. 

 

But it's not just first-time buyers who are suffering. Those who opted for a fixed rate mortgage since March 2009 would collectively be at least £3.2billion worse off per year than if they had taken out a tracker mortgage, according to calculations from HSBC. 

 

It found that borrowers who took out a five-year fix in 2007 when the average rate was 5.83% have lost out the most, with the average customer having paid £9,408 more in interest over the five-year period than if they had taken out a tracker mortgage. 

 

On top of this, falling house prices mean there are now 839,000 mortgage borrowers with insufficient equity in their homes to allow them to move to a better mortgage deal. As a result, these "mortgage prisoners" have missed out on record low mortgage rates. 

 

And, as with all types of borrowing - whether it's a mortgage, credit card or loan - those without a top-notch credit rating are still excluded from the very best rates on the market. For tips on improving your credit rating, read: 'Five ways to boost your credit score'. 

 

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.