At midday on Thursday 2nd November 2017 the Bank of England announced an increase in the base rate of 0.25% to 0.5%. Later on that evening I got a whatsapp message from my boy with a link of the news and a caption saying “this is for you…your a banker!” I was confused in what he meant so further questioning revealed his assertion that the interest rate increase had no impact on him and in fact he was actually looking after me because he knew I will be into this kind of “economics stuff” LOL! Check my bio out if you have not already.
Welllll truth be told…I didn’t even plan to write a blog about interest rates (I have been busy prepping some other serious content for y’all) but this assertion drew me out and I felt like writing some quick points on why every young adult (or whoever reading) should be bothered about rising interest rates!
So first off – Why has the Bank Increased Interest Rates?
The BoE has increased interest rates to tackle the rising rate of inflation. The bank is legally obliged to hold inflation to 2% (measured by CPI) and if they don’t then a open letter has to be written to the Chancellor by the BoE Governor. Well guess what the rate in September 2017 hit 3%. In normal circumstances a rise in interest rates is due to the economy overheating because consumer and business demand has accelerated. More demand makes things more expensive because people are willing to pay more for it and hence the price rises. Well I did say in normal circumstances because in case you have not noticed the economy is not overheating! Higher inflation is almost entirely due to the devaluation of the pound that has occurred since the vote to leave the EU in June 2016.
So why should I be bothered though…
1. Banks will soon increase lending rates
The rise will particularly impact those with variable rate mortgages and consumer debts who will now have to pay more. If you have been saving to get onto the property ladder for the first time and have enough money to buy your own home then try to lock in a fixed rate deal before all existing fix rate deals are pulled from the market. Some banks and providers may have changed their rates already but it’s worth a look around as some may not change until potentially next year!
For those who already have a mortgage and are approaching the end of their current deal then the same applies as you could end up moving to a product with rate that is more expensive but for the same fixed term.
So all in all there is a short window of opportunity dependant on your situation, so do make sure you do your research and move quickly to not get stuck with higher costs.
2. Better Saving Products
On the other hand, as this is the first rise in over a decade, it is likely to see the end of next to zero percent interest rates on saving products. Banks and other providers are equally expected to pass through the 0.25% increase to savers.
This is good news for savers and although rates having increased, lets remember it is only back to the level it was before the Brexit vote so I would not get carried away too much. Check out my 5 essentials savings tips for more information on how to get the best out of your money! If your like me and have appetite for even greater returns then my investment blog would be right up your street.
3. Student Loan Repayments
I saved this one to the end because it seems no-one knows about this one – well done for reading this far and trust me they don’t tell you this on the TV!! So the rise in the base rate could potentially mean paying more interest in student loan repayments and hence it will take longer to clear your balance. This means having to endure seeing more deductions on payslips – arrrgh I personally hate seeing payslip deductions!
Anyways gripe over. Heres the facts. The rate for those who graduated between 1998 and 2011 in England and Wales is either the previous March’s inflation (RPI) rate or the UK base rate + 1%, whichever’s lower. As I graduated in 2011 – I fit into this bracket.
So for those like me – March 2017’s inflation rate was 3.1%, so the base rate + 1% is still lower at 1.5%. Hardly a celebration paying more interest but it is what it is. The interest rate change will take effect from 1 December 2017. At this point I will look to see how much extra I am paying to see whether it is worthwhile voluntarily paying a little bit more off each month so I can finish paying off the loan to avoid adding another couple years or so.
For more information on how these repayment rates are set or if you started university after 2011 (the above is worked out differently for you) then check out this money saving expert link.
So there you have it, whether you are a banker, doctor, entrepreneur or whatever God’s calling is for your life it is important to pay attention to interest rate changes and make sure you prepare yourself well to either take advantage or limit the disadvantages. Ain’t nobody got time for someone who was “unbothered” so please don’t be that naive girl or guy! Simply put interest rates affect everyone.
Hope you enjoyed the read, and don’t be shy to leave a comment and share with your friends if you liked this post. Please please please, don’t just think it (or DM me saying how great this is) but also write it so I know and others too! Also theres plenty more content to come this month including some guest blogs on your favourite wealth and investment topics like how to get into trading and how to develop further income streams…cant wait!!