Base rate checklist: How rising interest rates could affect you
PUBLISHED: 12:31 21 November 2017 | UPDATED: 12:45 21 November 2017
Banks and building societies have started announcing how they plan to apply the base rate rise to their products - but what does this mean for savers and borrowers?
For the first time in over a decade, the Bank of England base rate has increased, with implications for millions of savers and borrowers.
Borrowing costs having been held at rock-bottom levels since the financial crisis, but now, banks and building societies have already started outlining plans, in light of the base rate rise from 0.25 per cent to 0.5 per cent.
So now might be a good time to go through a base rate checklist, and make sure you’re making the most of your money.
Here are four key areas to consider...
Several providers have announced plans to increase some savings rates following the rise in the base rate. And millions of savers will also see a boost from NS&I’s announcement that it too plans to increase rates on its savings products - as well as improving the odds for Premium Bond holders.
But Rachel Springall, a spokeswoman for Moneyfacts.co.uk, says, generally, some savers may still find they don’t see much - or any - difference. And even if your savings provider is increasing the rate on your account, it doesn’t necessarily mean it’s worth sticking with them, as there could be better deals out there.
Rachel says some savings providers are “dragging their heels”, and adds: “It’s as good a time as any to review the best buys and switch to something better if (savers) are not satisfied.”
Home owners with a fixed-rate mortgage are cushioned from the immediate impact of rising interest rates. But those on a variable rate mortgage may now see their costs go up.
According to trade body UK Finance, nearly four million regulated home owner mortgages across the UK are some sort of variable rate deal.
A string of providers have announced changes affecting people on a tracker mortgage, or those on a standard variable rate (SVR), which mortgage holders often end up on when an initial mortgage deal comes to an end.
Rachel says: “Mortgage borrowers on a tracker rate will feel the impact of the rate rise fairly immediately, whereas many lenders appear to be waiting at least a month until they change their standard variable rate, which will give borrowers a little time to consider moving their deal.
“It’s going to be more likely that borrowers will save money by switching from an SVR to a fixed rate, but whether they can afford to move their deal is another matter entirely.”
In recent years, with interest rates so low, current accounts have been the place for some savvy savers to store their cash - often offering better returns than a traditional savings account.
But after the base rate was chopped to 0.25 per cent in 2016, a string of current account providers announced they were cutting the interest rates on these deals, or slashing other perks that came with them.
So far, there hasn’t been much sign of the base rate increase having an impact on current accounts - but providers are still offering big cash bonuses to switch - so it may still be a good time to shop around.
Sir Steve Webb, a former pensions minister who is now director of policy at Royal London, says a key question is whether there will now be a period of rising interest rates. If so, this could mean pensions annuity rates continue to improve, which would be good news for savers.
Sir Steve continues: “Less good is that people with company pension rights which they were thinking of transferring out may start to be offered lower transfer values.
“Whilst the future path of interest rate rises remains uncertain, there must be a chance that we will never again see the transfer values which people have been offered in the last year or two.
“For people considering a transfer, it might be worth taking impartial advice as to the pros and cons of a transfer before transfer values fall further.”
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