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, from 0.25 per cent to 0.5 per cent, with implications for millions of savers and borrowers.
So now is a good time to go through a base rate checklist, and ensure 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 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 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. Springall 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 mortgages 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 deal comes to an end.
Springall says: “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 offering cash bonuses to switch, so it may be a good time to shop around.
Sir Steve Webb, 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.
Webb adds: “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.”