Inflation is continuing to effect economies around the world. Banks are having to react quickly and by doing so, the national interest rate in the UK is now at its highest level for 13 years.
This article will explain the meaning of interest rates, and how they can affect you.
What is an interest rate?
An interest rate determines how high the cost of borrowing is, the higher the interest rate, the more you’ll have to pay back.
However, if you’re a consistent money saver, you’ll reap the rewards of high interest rates. A savings rate tells you how much money you’ll receive into your account as a percentage of your savings.
It’s important to keep an eye on interest rates, especially as they continue to fluctuate. The smallest changes in interest rates can have a significant impact on your money.
What are fixed interest rates?
A fixed interest rate is a set rate that is charged on a debt, such as a mortgage or loan. Depending on your agreement, it might apply for the entire duration of your loan or just a part of your term. They are particularly attractive to borrowers who don’t want their interest rates changing over the course of their loans, as this can increase their payment amount.
Mortgages
Rising interest rates will likely affect homeowners or first-time buyers who have a mortgage, or those who are looking to apply for one.
If you have an adjustable-rate agreement on your mortgage, chances are that you’ll see a hike in your monthly repayments as the interest rate continues to soar.
Loans and credit cards
It’s important to assess your finances if you’ve taken out a loan or a credit card, to ensure you can stay on top of your repayments. If the cost of borrowing is becoming more expensive, there’s less of an incentive to take out such loans, and households who need them could struggle.
Speaking to the loan provider to discuss whether you can still afford the short term loan repayments, following on from the interest rate hike, is vital.
Borrowing for businesses
Lenders of unsecured loans and credit cards will likely have to adjust the cost of these to reflect the rise of the national interest rate, making it more expensive for businesses to manage their accounts and borrow capital.
Share values for investors – Same as above?
As there is a link between interest rates and the stock market, share valuations for investors will likely have to reduce.
This is because businesses will see their basic operating and borrowing costs rise, therefore, reducing the amount of money that typically goes into investing in the growth of the business.
