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This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Q: What is the base rate?
Answer: The base rate is the Bank of England’s official interest rate determined by their Monetary Policy Committee eight times a year. Banks and building societies use the base rate to determine interest rates for mortgages and saving accounts.
The current BoE base rate of 0.50% was increased from 0.25% in November 2017, marking it the first time it had risen in a decade.
When the base rate goes up, banks will normally pass on the extra expenses to their customers or members by increasing their mortgage interest rates.
If you have a fixed-rate mortgage, there’s no need to worry about base rate changes. Variable rate mortgages are a different story as your rate is dependent on the base rate and even a small increase could mean hundreds of extra pounds paid per year.
Banks will also usually increase rates on their savings accounts, albeit after some time. Many saving accounts are fixed rates so if your bank does increase their rates, you won’t reap the benefits until the end of your initial term.
If you happen to have an easy-access savings account, you might get lucky. Since the rates on these products are variable, your bank may pass along the rate increase. Check to see if your account is based on the base rate for an easy way to save more money.
Essentially, the reason behind a rate increase is to encourage people to save rather than spend money in an effort to combat inflation. So when the Bank of England increases the base rate, it means borrowing becomes more costly and saving can be even more beneficial.
If you need help to manage your finances to make the most of current interest rates, speak to one of our financial specialists today.