The Bank of England has cut interest rates to an historical low of 0.1% from their previous level at 0.25%.
An interest rate fall is bad news for savers who will see smaller returns on cash in deposit accounts.
It’s good news for borrowers, however, because it means the interest charges on debt falls. In other words, borrowing gets cheaper.
The rate cut 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 affects different kinds of borrowing as well as savers, and what action should be taken to improve finances:
Anyone on a variable rate or tracker deal should see monthly repayments fall. Your lender should have written to you explaining the new level of charges and what your new repayments will be.
Tracker mortgages pegged to the base rate will typically fall by 0.65 percentage points following the two interest cuts in March.
For borrowers on a standard variable rate (SVR), on to which a mortgage reverts at the end of a fixed or discounted period, monthly repayments will most likely fall.
SVRs typically move when interest rates do though not always by the full cut. Yet even with a drop in SVRs, borrowers on this kind of loan are still paying way more than they need to each month. Compare 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 rock-bottom rate.
If you have a fixed rate mortgage, the rate cut won’t affect your monthly repayments. Those coming to the end of their existing fixed rate are in a good position to look for a new deal as lenders wrestle for the top spot on best buy tables by trimming rates.
You can search for a new deal here.
Returns on cash savings will suffer as a result of the interest rate cut, with banks and building societies reducing rates paid.
While rates are pretty low on savings already, there are millions who have money stashed in accounts paying next to nothing.
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. Superior rates are available on fixed term accounts so consider opening one if you can afford to leave some of your money untouched for a time.
Borrowing on credit cards could become cheaper. 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% card. Switching your debt can potentially save hundreds or even thousands of pounds in interest payments.
It’s worth finding out of you’re eligible for a 0% balance transfer card which means waving goodbye to bank charges for a set number of months – up to 29 months at the moment. 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 are eligible for a better deal on a loan, particularly if your credit score has improved since you took out your existing one.
Coupled with the interest rate cut, you might be in a good position to take out a new, cheaper loan and repay 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.