The Bank of England has raised interest rates from 0.25% to 0.5% amid concern over rising inflation.
An interest rate rise is good news for savers, who could in time see better returns on their cash.
It’s bad news for borrowers though, because it means the interest charges on debt may rise.
The rate rise provides a good opportunity to review your finances to see what you can do to save money, whatever your situation.
Here’s how the news can affect your finances:
Anyone on a tracker deal will see monthly repayments rise. Your lender should have written to you explaining the new level of charges and what your new repayments will be.
For borrowers on a standard variable rate (SVR) – which is what a mortgage reverts to at the end of a fixed or discounted period – monthly repayments will also likely rise.
SVRs typically move when interest rates do, though not always by the full amount. Borrowers on this kind of loan are paying far more than they need to each month. It’s worth comparing mortgage deals to find out what you can save. Make sure you check your credit report in advance of an application to improve your chances of securing a good rate.
Interest rates are still historically very low, so a fixed-rate mortgage could be a good option to consider.
If you have a fixed-rate mortgage, the rate rise won’t affect your monthly repayments.
If you’re coming to the end of your fixed-rate mortgage in the next three to six months, it’s worth checking out your options now. Doing nothing will mean going onto your lender’s SVR, which can be pricey.
You can search for a new deal here.
The interest rate rise should see saving rates go up. But banks don’t tend to increase rates straight away – and may not pass on the full rise to savers.
If you’re thinking of putting money into a fixed-rate account, it’s important to consider what interest rates might do in the future. As a saver you’ll want to benefit from any potential rate rises. If in doubt, you can always use an easy access savings account for now, and consider a fixed-rate account later.
Even if you have just a small balance, now is a good time to make sure it’s earning the maximum amount by using comparison tools to find the highest paying account.
Borrowing on credit cards could become more expensive. Although they don't tend to follow changes in the Bank of England base rate, if you have credit card debt, this is a good reminder to find the card with the lowest rate possible - or even better, a 0% balance transfer card. Switching your debt can potentially save hundreds or even thousands of pounds in interest payments.
A 0% balance transfer card means waving goodbye to bank charges for a set number of months. Every penny you pay on to a 0% card goes to clearing the debt, so you save money on charges and pay it off faster. But look out for balance transfer fees. They tend to be 2 to 3% of the balance you’ve transferred but can sometimes be higher, particularly if the promotional period is longer.
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Find the best card for you here.
If you have a personal loan your monthly repayments won’t change after an interest rate move, because the rate of interest is fixed for the term of the loan. However, it might be worth checking if you’re eligible for a better deal on a loan, particularly if your credit score has improved since you took out your existing one.
Watch out for hefty penalties for repaying early– crunch the numbers and make sure any move is worth your while.
Compare rates available to you here.