Bank of England maintains interest rates: what does this mean for borrowers?

Bank of England maintains interest rates: what does this mean for borrowers?
Image source: Getty Images


The Bank of England has decided to keep interest rates at 0.1% despite concerns that inflation could accelerate this year.

Interest rates have been kept at their historic low levels because the central bank wants to see how quickly the UK economy recovers – and whether inflation will continue on the same trajectory.

But what does this mean for you and your finances?

Interest rates and the cost of borrowing

Generally, the lower interest rates are, the cheaper borrowing is. The base rate is what the Bank of England charges other banks and lenders when they borrow money. So if it is cheaper to borrow from the Bank of England, lenders are likely to charge you less.

With rates being held at 0.1%, the cost of borrowing will remain low. So let’s take a look at how this could affect your mortgage, loan or credit card.

Mortgages

New mortgage deals are extremely competitive at the time of writing. In fact, there are some fixed-rate deals around that are below 1%.

Ultra-low interest rates, a booming housing market and banks flush with cash from people’s pandemic savings has meant there are some super cheap mortgages on the market.

The recent announcement that interest rates will remain the same will most likely lead to more deals becoming available.

But it is also good news for anyone on a tracker mortgage or a standard variable rate. With these types of mortgages, your rate is very much dictated by the base rate. So if the base rate remains low, it means that the interest rate you are charged should remain the same.

4 iron-clad rules for saving money on everything

Our Editor Sam Robson has been on a personal cost-cutting mission for years – and it’s time to share his wisdom.

Check out his choicest saving tips and tricks in this free report, “Sam’s 4 Iron-Clad Rules For Saving Money On Everything”.

Just enter your email below for instant access to your free copy.

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.

Personal loans

Unlike mortgages, the correlation between low interest rates and personal loan rates isn’t always as strong. In fact, in the past, despite repeated cuts in the base rate, personal loan rates have responded differently.

This is largely dictated by the level of risk that lenders are willing to take on. So while interest rates may be low, if banks are concerned about lending due to a weak economy or increased job losses, then it’s likely that you will struggle to find competitive deals.

Of course, if you are on a variable rate for your loan, then a low base rate would work in your favour.

Credit cards

Changes in the base rate can have an impact on your credit card interest rate. Your standard and cash interest rates will move in line with the Bank of England base rate.

So if interest rates are kept low, your standard and cash rates will remain unchanged.

However, if the Bank of England increases interest rates, then your credit card rate will also go up.

The best way to avoid interest charges is to clear your credit card balance in full each month. Credit cards typically have a 56-day interest-free period on purchases, as long as the balance is cleared. If you leave a balance on a card – even if you make the minimum repayment – you could incur costly interest charges.

Interest rates and savings

While borrowers may be comforted by the Bank of England maintaining interest rates at 0.1%, savers are likely to be grinding their teeth.

A low base rate means low savings rates. And as inflation is on the rise, the value of cash savings is slowly being eroded.

If you are looking for a high-interest paying savings account, fixed-rate bonds or notice accounts are likely to pay more than easy access accounts.

But if you want even greater returns and have the luxury of time, you could consider a stocks and shares ISA. While there is no guarantee, you could find that your money will work harder here in the long run if the ultra-low interest rate environment endures.

Reviewed and rated 4 stars out of 5 by MyWalletHero

Need a financial adviser? Get a free initial review lasting up to 1 hour, plus £50 off any follow-up advice.

MyWalletHero has sourced you a £50 discount off the cost of advice when you find an independent or whole-of-market financial adviser through Unbiased.co.uk*. All advisers are FCA-regulated, qualified and give fully unbiased advice. To find yourself an adviser fast and for free – use the Unbiased matching tool.

*This is an offer from one of our affiliate partners. For more information on why and how we work with partners, click here.

Was this article helpful?
YesNo

Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.