What the financial market chaos could mean for YOUR money from savings to pensions – and how you can protect your cash

TURMOIL in the markets could be set to hit your pension, savings and mortgage. There was a huge bond market sell-off this week across the world, which saw investors getting rid of their government bonds. Government bonds are investments where you loan money to a government in return for regular interest payments. They’re generally considered a safe investment, but investors were spooked this week by fears of rising inflation and government debts. Sign up for the Money newsletter Thank you! The sell-off has driven up yields, also known as interest rates, including in the UK. As a result, the cost of UK government borrowing has increased. At one point on Wednesday, the cost of 10-year borrowing for the government hit its highest level since 2008 – although it’s eased back down slightly now. This will cause a headache for Chancellor John Healey ahead of his first Autumn Budget next month. It means the government will have to spend more on its debt, which will squeeze public spending and leave less room for tax cuts. The turmoil in the markets is also likely to have an impact on YOUR money more immediately. Most read in Money Here’s everything you should know… Mortgages Mortgage lenders could start pushing up interest rates because of the turmoil Credit: Rawpixel It’s likely mortgage rates will start rising again because of the volatility in the bond markets. Fixed mortgage rates are largely influenced by “swap rates”, which are the interest rates that banks charge each other for borrowing. The spike in UK government borrowing costs has caused swap rates to rise dramatically this week. That could mean lenders choose to push up their interest rates. Coventry Building Society already announced on Thursday it would hike its fixed-rate deals for new and existing borrowers from next week. Other lenders could choose to reprice their mortgages in the coming days. You’ll mostly be affected by a rise in rates if you’re planning to remortgage soon or buying your first home. On Friday, the average two-year fixed rate was 5.6% while five-year fixes sat at 5.64%. If you’re coming up for a remortgage or planning to buy within the next six months, you should lock in to a deal as soon as possible. A mortgage broker can help you to find the best deal for your situation. Remember, if a cheaper deal comes up before you’ve completed then you’ll usually be able to switch onto it. Pensions Your pension pot could be affected by movement in the bond markets Credit: Alamy If you’re coming up for retirement, your pension pot could be impacted by the market turmoil. That’s because your pension investments might have been moved more into gilts (which are UK government bonds) as your retirement date gets closer. If this is the case and you’re selling your gilts soon, you might see your investments decrease in value. If you’re close to retirement, you might want to review what you’re invested in – especially if much of your pension savings are in bonds. However, if you’re planning to buy an annuity (which converts your pension pot into a regular, guaranteed income for life) you might actually be better off. Annuity rates are usually closely linked to 15-year gilt yields, which have hit 28-year highs this week. If you’re aged under 50 and saving into a pension, you’re less likely to be affected as your money will probably be in the stock market instead. Especially if you’ve got decades to go until retirement, you shouldn’t take any kneejerk actions such as changing your investments or stopping your contributions. That’s because you can potentially make things worse by locking in your losses if you sell your investments now. Savings Make sure you’re getting a savings rate above the level of inflation Credit: Getty Money markets expect the Bank of England to keep interest rates the same when it announces its next policy decision on September 17. However, they are pricing in one rate rise before the end of the year and two more in 2027. The Bank of England’s interest rate, also known as the base rate, influences the rate on your savings accounts. If the rate remains high, you should get a good return on your savings. It’s important that you get a savings rate above the level of inflation, which is currently 2.9%. If your savings rate is lower than this, the value of your money will be eroded by inflation. The top-paying easy-access savings accounts currently pay around 4.5% interest. Spring, which is part of Paragon Bank, pays an impressive 5% on a maximum of £5,000 in savings. Or Cahoot pays the same on up to £3,000 of savings for one year. Comment now