Higher UK Interest Rate - Six Ways This Will Impact Your Finances
If you've been following the news, you may have heard that The Monetary Policy Committee (MPC), which is a committee of the Bank of England (BoE) and is responsible for making Interest rate decision, has voted to raise interest rates to 0.75%. This is the first time since 2009 that the rate has been above 0.5%.
Fair enough. However, like many similar bits of financial news, a lot of people aren't really clear about what this hike means for them. As always MoneyNotes is here to save the day, and offer up your regular dose of financial education to brush up your financial IQ
1. Savers - YAY!
It's good news for anyone that has cash in a savings account as the interest rate hike means that you'll pocket an extra 0.25% on top of your savings. Word of warning though, banks can be notoriously slow to pass on these interest rate increases to customers.
2. Debt - Thumbs down
If you have any debt that doesn't have fixed rate, prepare to see banks move faster than The Flash to up interest rates on your debt, meaning you will be paying back a larger amount of money. Try to make sure that you keep tabs on your debt and make sure you're paying the lowest interest rate possible at all times. Also, if you do see the hike and are worried about how you will manage to pay it off, please don't bury your head in the sand. Speak up and seek help - there are plenty of reputable organisation that can offer support and advice, and help you avoid spiralling debt and/or a bad credit rating.
3. Mortgage - Mixed bag
If you have a fixed rate mortgage, it means that your interest rate for the mortgage term is set in stone, and the recent increase won't impact you. However, if you are one of the 3.5 million households who are on a variable interest rate mortgage also called trackers, what you pay is broadly determined by this interest rate. This means that with the recent rise, you will see your mortgage payments go up.
4. Investments - Mixed bag
Investments are a bit trickier to call. The interest rate hike is expected to have a negative impact on the price of some types of investments, and make them less competitive options to park your money within. However, while the interest rate has gone up, it is still at a relatively low level of 0.75% compared to 5% ten years ago, and furthermore, the rise should be seen as a positive signal that the economy is moving into a better place. Well at least that's what the clever bods at Bank of England are assuming.
5. Holiday Money - Meh..
I know you were hoping for this to be an interest rate winner, but sadly we're just not sure yet. The assumption is generally that with a higher interest rate, the pound will get stronger, and we'll get more bang for our buck when we're trading it in for overseas cash for our summer hols. However, so far, we haven't seen the pound getting any stronger so this may all end up being slightly wishful thinking. Honestly, despite the interest rate hike, the strength of the pound is still likely being impacted by the rather large elephant in the room - Brexit.
6. Retirement Money
When most commentators talk about interest rates in the context of retirement money they are usually talking about annuities. Annuity basically means you transfer a pot of money at the outset to a Financial Conduct Authority regulated company for example £100,000 and in return you receive a guaranteed income for the rest of your life (and/or your spouse's life if you chose to). Lately, the guaranteed annual income for a £100,000 pot has broadly ranged between £4,000 to £5,000 a year and should be expected to rise as a result of interest rate hike. Buying an annuity and other retirement income decisions are an extremely important consideration and you will need guidance so why not talk to the guys at Pension Wise
If the above has proved helpful and you want to chat about your finances then why not start your financial educational journey to better living with our Money Chat package or one of our other financial educational packages.