BANKS and building societies have started announcing how they plan to apply the base rate rise to their products – but what does it mean for savers and borrowers?
Borrowing costs have been held at rock-bottom levels since the financial crisis, but now banks and building societies have started outlining plans, in light of the base rate rise from 0.25% to 0.5% this month.
So now might be a good time to go through a base rate checklist, and make sure you’re making the most of your money.
Here are four key areas to consider…
Savings rates
Several providers have announced plans to increase some savings rates. And millions of savers will also see a boost from NS&I’s announcement that it too 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, generally, 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.
She says some savings providers are “dragging their heels”, and adds: “It’s as good a time as any to review the best buys and switch to something better if savers are not satisfied.”
Mortgages
Home owners with a fixed-rate mortgage are cushioned from the immediate impact of rising interest rates. But those on a variable rate may now see their costs go up.
According to trade body UK Finance, nearly four million mortgages across the UK involve variable rate deals.
A string of providers have announced changes affecting people on a tracker mortgage, or those on a standard variable rate, which mortgage holders often end up on when an initial mortgage deal comes to an end.
Rachel says: “Mortgage borrowers on a tracker rate will feel the impact of the rate rise fairly immediately, whereas many lenders appear to be waiting at least a month until they change their standard variable rate, which will give borrowers a little time to consider moving their deal.”
Current accounts
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% in 2016, a string of 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 still offering big cash bonuses to switch so it may still be a good time to shop around.
Pensions
Sir Steve Webb, a former pensions minister who is now 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.
Sir Steve continues: “Less good is that people with company pension rights which they were thinking of transferring out may start to be offered lower transfer values.
“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.
“For people considering a transfer, it might be worth taking impartial advice as to the pros and cons before transfer values fall further.”
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