ISAs | 15th November 2018 | 2 reads
Which ISA should you choose?
Choosing an Individual Savings Account (ISA) used to be simple. There was either a cash...Read more
Market News | 17th August 2018
Recently, The Bank of England raised UK interest rates above the emergency level which they introduced after the financial crisis. The rate currently stands at 0.75%.
This increase comes during a time of concern about the potential negative economic impact of Brexit. Despite this, interest rates have been raised to 0.75% from 0.5% – the rate they were dropped to in 2009 as a result of the recession.
While a rise of 0.25% may not seem like much, it could have a significant impact on you and your personal finances.
The direct impact on many people is likely to be minimal. But, if you have credit products like loans, credit cards, and car finance, the interest rates could increase.
Most people with big mortgages are on fixed rates, so the increase in interest won’t have an impact in this case. But those with variable interest rates on their mortgage (about 35% of people with mortgages) may experience an increased amount of interest they owe. The same could be true for those with other credit cards, or loans with variable interest rates. The slight increase in the money you owe will add up over time.
The 0.25% increase doesn’t sound like a lot. But, if you have a mortgage that matches the base rate of interest, an extra 0.25% adds £12 per month to a £100,000 repayment mortgage. It adds £25 per month on a £200,000 loan. In the UK, 400,000 households on Nationwide’s base mortgage rate will experience a rise from £449 to £461 in their monthly payments for a loan size of £100,000. On a loan of £200,000, their monthly payments will rise from £897 to £922.
When the base interest rate increases, banks often increase the interest rates on loans and credit to increase their profit margin. The idea is that banks should also pass on the rise to their savings rates.
Banks are often slow to raise savings rates. The current interest rate on an easy access account at one of the big five banks in the UK is 0.23%. Interest rates are the highest they have been in nine years, so boosts in savings interest rates are likely. But increases are unlikely to be above 0.3 to 0.4%. As with all things, some savings providers are likely to be a lot more generous than others, so you might want to consider switching savings accounts to maximise your money.
If you’re looking to get a higher return on your savings, or if you’re looking to start investing your money, now might be the best time to do it. Savings rates are going to be the highest they have been in the past decade, so we recommend taking a look into opening an ISA account. These provide the highest interest rates and tax-free savings so you can make the most out of your money. As with any investment, there could be varying risk to your money. It’s best to choose an ISA that falls inline with your future financial aspirations.