Where were you the last time the Bank of England put up interest rates? You would be forgiven for not remembering – it was over a decade ago.
But don’t worry, here we answer all your questions.
The Bank of England (BoE) has increased what is known as the base rate to 0.5%.
This is a 0.25% increase and is the first time it has gone up since July 2007.
What does it mean?
Banks, building societies and other lenders do not have to follow Bank of England interest rate decisions. But, it can affect the cost of borrowing and how much you earn on your savings.
Should I worry?
No. First, this is only a small increase, so the effect will minimal and, for a lot of people, it will take a while to filter down to the consumer.
Forecasters are not expecting there to be regular further rises and any increases are likely to be small.
However, it’s important to understand how this, and any potential increases in the future, will affect your finances.
How an interest rate rise could affect you if…
You have a mortgage
This depends on what kind of mortgage you are on.
If you’re on a variable rate tracker mortgage, which follows the BoE base rate, you will see increases straight away.
Standard variable rate mortgage holders will probably also see an increase, but this is decided by the lender.
If you have a fixed rate mortgage, you are likely to be affected when you reach the end of your current deal.
If you’re unsure what kind of mortgage you’re on, check your paperwork or with your provider to find out how an interest rate will affect you.
You’re a saver
It’s good news for savers. You could see an increase in the interest you are paid on your money in the bank.
After years of low interest rates, banks and building societies might also increase the rates on new savings accounts. This means it’s important to shop around to make sure you’re getting the best deal.
You’re a borrower
Any personal loans you currently have will not be affected by the interest rate rise. You agreed to fixed rate of interest when you took out the loan.
Credit cards and charges on overdrafts might go up. But you will be given notice before this happens.
If you’re thinking about borrowing money in the future, including mortgages, this might be more expensive.
It’s also good news if you’re about to buy an annuity. An interest rate rise means you’ll get a better rate of return.
You cannot switch an annuity you have already bought, but you can still benefit from better interest rates by putting the money into a savings account.