The Bank of England has raised interest rates to 0.75%. What could it mean for you?

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The Bank of England has raised interest rates from 0.5% to 0.75%. If you have a tracker rate mortgage, the interest rate on that will also rise by 0.25%. Interest rates on savings accounts should rise as well, but not necessarily by the full 0.25%

At the moment, mortgage lenders and banks haven’t said whether they’ll put up rates on mortgages and savings accounts. ? Find out what an interest rate rise might mean for you and whether interest rates on accounts you have could go up.

Savings

With most savings accounts, the interest rate could go up now the Bank of England has increased its base interest rate from 0.5% to 0.75%. I say ‘could’ because there’s absolutely no guarantee that interest rates on all savings products will increase. In fact, it’s very likely that some will stay the same. And, even if the bank or building society does increase interest rates, there is no guarantee that it will go up by as much as the Bank of England raises rates by.

SAVVY TIP: Last time interest rates rose – in November, Coventry Building Society, Nationwide, Newcastle Building Society, Skipton, and Yorkshire were all quick off the mark to raise interest rates on savings accounts by 0.25%. TSB raised them by 0.15% and the other big banks took a few days to decide what to do.

If you have money in a fixed rate savings account, the interest rate will stay the same until the end of the term.

What you can do: If you have savings in a variable rate account, you should be told if the interest rate is going up (it’s not something banks and building societies are generally shy about!). It’s a good opportunity to see if you can get a better deal elsewhere. Check savings websites such as SavingsChampion, or price comparison sites such as Moneyfacts, uSwitch or GoCompare.

SAVVY TIP: If you have money in a fixed rate savings account and you think you could do better elsewhere, check what the penalties are for closing your account. In some cases it may just be a few months’ interest and you may be better off moving your money.

Mortgage

If you have a fixed rate mortgage, your interest rate cannot rise during the term. If you have a standard variable rate mortgage your lender could increase the interest rate by more (or less – but that’s unlikely!) than the Bank of England raises rates by. The same applies if you have a discount rate mortgage.

If you have a tracker rate mortgage, your mortgage lender has to increase the interest rate by the same amount that the Bank of England raises interest rates by.

How much more your mortgage could cost: If you have a £200,000 repayment mortgage over 25 years, a 0.25% rise in interest rates would mean you’d pay approximately an extra £25 a month.

What you can do: If you’re on a fixed rate mortgage, you don’t need to do anything. If you’re on a standard variable rate, I’d suggest you remortgage to a cheaper deal if you can – not least because you’re paying more than you need to.

SAVVY TIP: I’d recommend using a good, independent mortgage broker unless your situation is very straightforward. The advantage is that they will know which banks and building societies are more likely to accept your application. It’s definitely worthwhile if you are self employed (unless you have been so for years) or your credit rating isn’t excellent.

Related articles:

You can find out what your mortgage lender’s current standard variable rate is in my article and you can read tips on how to get the best mortgage deal for you  and find out how to get a good mortgage broker.

Credit card

If you have a credit card, there are rules and regulations about when your credit card company can increase the interest rate. For example, they can’t increase the interest rate in the first 12 months of you having the card and they can’t increase it more than once every six months after that 12-month period.

What you can do: If your credit card company increases the interest rates, try and get a 0% balance transfer credit card deal. If you can’t get one, you have the right to reject the interest rate rise within 60 days and close your credit card account. The credit card company must then give you a reasonable time to pay off the money you owe.

SAVVY TIP: If you’re worried that you won’t qualify for a 0% credit card deal, there are several credit checker and credit matcher tools available – and some credit card companies will also give you an indication of whether you’d be successful before you apply.

Related article: What can you do if your credit card company increases the interest rate on your card,

Loans

Personal loans (from a bank, for example) have a fixed interest rate. That means your interest rate – and therefore your monthly payments – shouldn’t change for the duration of the loan.

What you can do: If you want to pay off your loan quickly, you can normally overpay by up to £8,000 a year, with a minimal overpayment penalty. However, you have to tell the loan provider you’re making an overpayment and do it within a certain time period. Then penalty will not be more than 1% of the amount you’ve overpaid.

Related article: You can read more about overpaying your loan in my article called Paying off a loan early

PCP deals

Personal contract plans, which most new cars are sold with, are fixed rate deals. So you won’t find that your monthly payments rise if there’s an interest rate rise.

Related articles:

The cheapest 10 year fixed rate mortgages

Personal contract plans if you’re buying a car – pros and cons of PCP deals

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