What is the base rate?
In a nutshell, the base rate is the interest rate set by the Bank of England for lending to other banks. So it’s used as a guide for the loan, credit card, mortgage and savings rates that are then passed on to customers.
The 2008 financial crash led to record-low rates, and when the 0.25% rate was announced in August 2016, it was the lowest we’d ever seen in the UK. That means this increase (announced 2nd November 2017) to 0.5% is the first interest rate rise in 10 years.
What does it mean for my savings?
It really depends how much you have saved. Rates will always vary from bank to bank (and may rise and drop in line with the base rate depending on your account), but unless your nest egg's ostrich-sized, you shouldn't notice a major impact.
For example, if you have £1,000 in a savings account earning 2% interest per year, you’ll get £20 interest (leaving you with £1,020). If the interest rate rose by 0.25% you’d only get an additional £2.50 for that year (not quite ‘early retirement in the Caribbean’ levels).
What if I have a mortgage?
As you might expect, this depends on what type of mortgage you have and who it’s with. But the main difference is between fixed-rate, tracker or variable mortgages.
If you’re in a fixed-rate mortgage period (one that’s not affected by the base rate), there’ll be no change to your monthly payments. That said, bear in mind they may change when your mortgage period runs out.
In any case, if your rate is affected, your lender should get in contact with you about any changes. But if you’d like to get an idea, you can try out this interest rate mortgage calculator from ThisisMoney.co.uk.
Will my loan be affected?
Probably not. Personal loan rates are usually agreed when you take the loan out and fixed for the repayment period. If you’re planning on taking out a loan soon though, you may find rates are higher than were before this base rate increase.
How about credit cards?
The rate (the APR) on credit cards is agreed when you sign up for the card so you shouldn’t notice any difference. If there are any changes to your rate, your lender will contact you directly advising the changes and when they will take effect.
(Of course, if you can, it’s always better to pay off credit card balances in full every month.)
How can B help?
Whether rates go up or down, it helps to have a digital banking service that lets you keep a close eye on what you spend and save. The B app helps give you control of your money, with easy-to-use tagging, budgeting and saving tools.
As always, we’re here to answer any questions you might have about rates, your accounts or anything else you want to know about your money.
More tips for smart spending and saving
You might want to flex your money management muscles by following the savvy suggestions in these blog posts. Getting fitter financially has never been easier.
This blog is a bit of fun and not intended to influence your decisions in any way. The content of the blog is reliable at the time of publishing, but we can’t guarantee that it is neither error nor omission free, beyond our knowledge. The links are there for you to explore if you wish, but we don’t have any connection with the third party sites, nor responsibility for them or their content.