Interest rates are now at a record low of 0.25% after the Bank of England made the first cut since 2009 – so how could this affect you and your money?
The Bank of England base rate has been 0.5% for seven years, and in that time we've gradually seen the average rate of interest you can earn on your savings fall.
The base rate drop to 0.25% means low interest rates are likely to hang around.
Savers probably won't see an immediate change to the rate they can earn but further drops are a possibility in the future.
There's not a great deal you can do to avoid this, but it does mean it's even more important than ever to find out what interest you are currently earning, and shop around for a better rate.
One place to look is your high street bank. Some current accounts are still offering rates as high as 5% to tempt you to switch. That said, there are often terms and conditions attached so they might not work for you – and it's possible the banks will look to cut these rates in the future, so keep a close eye.
Depending on the type of mortgage you have an interest rate cut could be good news, bringing lower monthly mortgage repayments
Here's a snapshot of what could happen if you have one of the more common mortgage types:
- Tracker mortgage – the rate of interest charged on your mortgage will drop by 0.25%
- Standard variable rate mortgage – these don't have to change, though the Bank of England is encouraging lenders to pass on the rate drop to customers
- Fixed-rate mortgage – the rate of interest charged on your mortgage will stay the same for the duration of the fixed period
It's not likely to be good news for anyone looking to purchase an annuity as the income you can expect to have in retirement will almost certainly drop. This is because annuities are linked to gilt rates.
If you're due to retire soon, make sure you consider all your options and shop around. Consider seeking independent financial advice or contact Pensionwise to explore your options.
The New State Pension is not directly affected.
This article is provided by the Money Advice Service.