Three ways interest rate rises could impact your finances

Blog Interest Rates

It’s just short of 13 years since the Bank of England did something it had never done before in its long history – it pushed base rate below 1%. Historic low-interest rates have since become the norm. But we’re starting to see signs the era of cheap borrowing is coming to an end.

Since December 2021, the Bank of England has increased interest rates twice. What’s more, the central bank has warned it may need to raise base rate even further in the near future.1

Here’s three ways it could impact your financial plans.

1. Your mortgage payments will go up

Interest rate rises are bad news for borrowers, who in recent years have benefited from record low deals.2

If you’re on a variable rate mortgage, your lender has probably already confirmed your repayments are going up. It also means fixed-rate mortgage deals are becoming more expensive.

This all underlines the need to think about your arrangements. Research shows you might be able to save a sizeable £200 a month by switching deals.3 If you’re on a variable rate, or a fixed-rate due to expire soon, it’s definitely worth looking at your options and speaking to an adviser.

2. You can get a better return on your savings

The increase in base rate means average savings rates are finally on the up, though increases have been slow and modest.5

This means you might be able to find a more rewarding home for your savings if you shop around and look at your options.

Savings accounts are important for keeping money for emergency needs, but they’re not ideal for long-term goals.

3. Your investments won’t see much impact over the long-term

There are all sorts of economic factors that can affect the performance of any investments you hold, including a pension. Interest rate rises are one of them, but it’s unlikely to make much long-term difference if you have a balanced portfolio of assets.

What this means is having a range of different investments, usually within a fund, that aim to provide a smoother overall performance. So, if some of your assets struggle for a period – perhaps because of news of an interest rate rise – other investments can still perform well to potentially balance it out.

If you have investments and aren’t sure how they’re performing, it might be a good idea to have them reviewed by an adviser. As the UK begins to move on from the pandemic and higher interest rates return, it’s worth making sure you have the most suitable long-term plans in place to benefit.

For help and advice with related matters, please get in touch with our team today.

Posted in Blog.