The Bank of England has held interest rates at 3.75%, marking the fifth consecutive month of no change. The decision, widely expected by economists, leaves the base rate unchanged.
The base rate influences the interest rates that banks and lenders apply to mortgages, loans, and savings accounts. It is the central bank's main tool for controlling inflation, which measures price rises. Higher borrowing costs reduce spending, helping to lower inflation. The Bank targets a 2% inflation rate.
How does this affect your mortgage?
Since the base rate remains the same, mortgage repayments stay unchanged. However, future changes depend on your mortgage type:
- Tracker mortgages: These follow the base rate, so payments move when the rate changes.
- Standard variable rate (SVR) mortgages: Typically change with the base rate, but lenders are not obliged to pass on the full cut or rise.
- Fixed-rate mortgages: Payments are unaffected during the fixed period. Only when the deal ends do payments change, usually rolling onto the lender's SVR unless you fix again.
How does it affect your debt?
If your credit card is linked to the base rate, you should see no change today. The average credit card purchase APR is around 36%, according to Moneyfacts. However, most credit cards have a variable rate that can fluctuate at the lender's discretion.
Personal loans and car financing typically have fixed rates, so ongoing agreements are unaffected by base rate changes. However, new agreements may see different rates.
How does it affect your savings?
Higher base rates generally lead to better savings rates, but when rates are expected to fall, savings rates often decline. Variable savings rates can change anytime, while fixed-rate accounts lock in a rate for a set period.
MoneySavingExpert.com lists current top rates. Revolut offers 5% for six months on up to £25,000 for new customers (2.9% variable plus a 2.1% bonus). Cahoot pays 5% on up to £3,000 for up to a year (variable). Tembo offers 4.55% on up to £20,000 (3% variable plus a 1.55% bonus).
For ISAs, Trading 212 offers 4.51% for new customers (3.6% variable plus a 0.91% bonus). GB Bank pays 4.92% for a one-year fix. Investec offers 5% for a three-year fix, and Atom Bank pays 5% on a five-year account.
Regular savings accounts offer the best rates but have strict terms. Lloyds pays 8% fixed for one year (max £250 monthly deposit). Santander also offers 8% (variable, up to £200 monthly).
