Finance Fridays – What the increase in interest rates means

We were looking at the cost of heating for last week's Finance Fridays. This week we are talking about the changes in interest rates. Last Thursday the Bank of England raised the Base Rate from 0.25% to 0.5%. This was the first first in ten years that interest rates had been increased. This was done in order to curb the high inflation that has hit household groceries and goods. In September 2017 the Consumer Price Index was 3%. The last time CPI was this high was back in March 2012. What though does the interest rate rise mean for people with mortgages and savings accounts?

Mortgages

Most people with a mortgage will be on a fixed rate. This means that during the fixed rate term period any interest rate changes will not affect what you pay. If you need to remortgage in the coming months it may be worth having a look round and see if you can find a new deal that at least matches your current deal. Your current provider may let you transfer to a new deal without any fees or exit penalties if you are within three months of your current deal expiring. 

Another type of deal you may be on is a tracker mortgage. This type of rate tracks the Bank of England Base Rate so if that goes up so does your mortgage interest rate. Your new rate will usually be effective from 1st December so next month's payment will be higher.

If you are on a provider's standard variable rate it is probably because your previous deal came to an end and you never got round to sorting out another deal. Unless you have a bad credit rating you should be able to transfer from a variable rate to a lower fixed rate with your current provider without any fees or costs. If you are happy to stay with your current provider you can often transfer to a new rate online without much hassle.

Savings
While providers are quick to increase their mortgage rates often they are a bit more reluctant to raise savings rates. Often if they do increase savings rates it might not be by the full amount. Rather shockingly on the day of the rate increase announcement Virgin Money actually cut the savings rate on one of its ISA accounts. Their Virgin ISA Saver account saw the rate drop to 0.75%. The last time the Base Rate was 0.5% in August 2016 this account had a rate of 1.3%. For those providers who are raising their rates some are being rather mean – Lloyds and TSB customers will see an increase of just 0.15% on most of the savings accounts rather than the full 0.25%.

Some of the providers that have announced they will be passing on the full rate are Nationwide, Skipton and Yorkshire Building Society – all traditional saver's havens of building societies. It shows it is worth looking around. However, as interest rates are still so low all round and this could be the last interest rate rise for some time money in cash savings accounts still won't be earning much money or currently keeping up with inflation.

Have you been affected by the change in interest rates? Do you shop around for better deals?

If you want to join in with this week's Finance Fridays then add your link to the linky below. Any post concerning financial matters is allowed. Full details here. It doesn't have to be published today as you have until 23.55 on Tuesday 14th November 2017 to join in.

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