The base rate impacts the interest you pay on mortgages, credit cards and loans, as well as the return you get on your savings
The Bank of England has announced its latest interest rates decision(Image: GETTY)
The Bank of England has held interest rates again at 3.75% despite rising inflation.
The base rate impacts the interest you pay on mortgages, credit cards and loans, as well as the return you get on your savings.
It comes against a backdrop of rising prices in the UK, with inflation increasing to a five-month high of 3.1% in August – and moving further away from the Bank of England 2% target.
But economists expect inflation will rise further, with households facing another energy bill hike next month. It marks the sixth time in a row that the Monetary Policy Committee has kept rates on hold. Six members voted to keep interest rates at 3.75% and three members wanted to increase it to 4%.
The latest pause comes despite the US Federal Reserve raising its interest rates for the first time in three years on Wednesday evening – and last week, the European Central Bank hiked its interest rates for the second time this year.
The Bank of England uses its base rate to try and keep inflation under control. When interest rates are higher, people spend less as the cost of borrowing goes up – this then helps slow down demand, and if demand falls, the idea is that price rises should slow too.
I have a mortgage – how does it affect me?
It all depends on what type of mortgage you have. If you have a tracker mortgage, this follows the movement of the base rate. This means as the base rate has not changed today, so you should not see any change to your monthly repayments.
If you have a standard variable rate (SVR) mortgage, it is not explicitly tied to the base rate and can be updated any time – though lenders normally do make changes when the base rate is updated.
You normally roll onto your lender’s SVR when your fixed deal comes to an end. If you have a fixed rate mortgage, you have agreed to pay a fixed amount every month for a set period of time.
This means your payments are not affected by the base rate and will not change until your fixed deal has ended. However, if you are coming off a cheap fix and looking to remortgage, you may find your payments will become more expensive as rates have gone up again in the last few months.
I have debt – how does it affect me?
If your credit card is linked to the base rate, then your interest rate can change when it is updated. But as there is no change to the base rate today, you should not see any changes to your credit card if it is linked to the base rate.
As most credit card rates are variable, they can change from time to time anyway – and not all will be tied to the base rate. Interest rates on personal loans and car financing are normally fixed.
This means your payments should not change even when the base rate is updated. However, if the base rate is changed in the future, then this can impact rates for new agreements.
I have savings – how does it affect me?
Savings rates generally move in the same direction as the base rate. If your savings rate is variable, it can change from time to time, but if your money is locked into a fixed rate account, then your rate will not change all the while you are in your fixed term.
MoneySavingExpert.com lists the best rates currently available. The best rate on an easy-access account is currently 5% while the top-paying fixed account is 5.25% but it involves fixing your money for five years. For a shorter one year fix, the best rate is currently 5%.
Regular savings accounts offer the best rates, but you can normally only make small deposits each month and some accounts restrict how many withdrawals you can make. The best regular saving rate is currently 8%.
