The Bank of England (BoE) base rate rose to 0.75% in March in response to Consumer Prices Index (CPI) inflation rising to 5.5% – almost triple the BoE’s target of 2%. Inflation is set to continue rising throughout the year (see Spring Statement round-up) with the Russian invasion of Ukraine creating increased pressure on already rising prices.
Any rise in the base rate has an impact on borrowing rates for businesses and individuals, and on savings rates. Each is likely to rise – great news for savers, not such great news for borrowers.
Any loan you have that does not have a fixed rate – such as some mortgages, personal loans or credit card debt, for example – could face a rise in interest rates if the company providing this chooses to pass this rate on. And many will.
However, if you have a fixed-rate mortgage, unsecured personal loan or other loan, for example, then you will not see these rates change until you reach the end of the offer term or until the loan is paid off.
If you have savings in a fixed-rate account, these will not rise either. But if your savings are in a non-fixed interest rate account, then you could see the interest you are paid on this rise.
If you see a better rate than you are being paid elsewhere, then it is worth considering moving your savings to the better-paying account. But bear in mind if you are in a fixed-rate account, you could face a penalty for doing this which could negate the benefit of moving. So, check with an expert before taking any action.
You also need to consider how much of your money is in each institution. The Financial Services Compensation Scheme (FSCS) covers your money on deposit with a single institution up to £85,000. But you need to be aware that various brands come under one institution – such as Halifax and TSB coming under the Lloyds Banking Group.
You would be covered up to £85,000 across all these accounts, not in each. It only becomes relevant if one of the banks goes bust, but we know from experience that however unlikely, this can happen. So, it is something to bear in mind.
If you are unsure about whether your money is working as hard for you as it could, then please feel free to get in touch and we will help you in any way we can.