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How would a UK interest rate rise affect you?

After a sustained period of low interest rates in the UK, several experts are expecting an interest rate rise in the not too distant future.

For many an interest rate rise will be welcome news, but for others this may cause great concern.  As interest rates have not risen in the UK since July 2007, some may be wondering what all of the fuss is about.

Generally speaking low interest rates are great for borrowers.  This is because it is cheaper for them to borrow money.  An increase in interest rates will over time lead to higher borrowing costs*.  Clearly borrowers will not be looking forward to any interest rate increases.

On the other hand, low interest rates are generally bad news for savers.  This is because they receive less interest on any savings they have deposited with banks and building societies.  An increase in interest rates is general speaking good news for savers, as over time they should receive more interest on their savings*.

Savers also need to consider inflation.  Ideally savers want to receive an interest rate on their savings which is higher than inflation.  When savers receive an interest rate lower than inflation, the purchasing power of their money decreases.  This means over a period of time their money (including any interest earned) will be able to buy less.

Farrell Financial Planning do not give advice on future interest rate movements.  Farrell Financial Planning are whole of market independent financial advisers (IFAs) based in Glasgow.

Contact us to find out how our expertise could help you plan for your financial future.

It is extremely important to take independent financial advice before making any financial decisions.

All information is correct as at 10:00 on 02/11/17.

* Future changes to interest rates will not necessarily affect borrowers or savers immediately.  When fixed rates of interest are applied (in most circumstances) any change to interest rates would not make an impact until after the end of the fixed rate period.  All interest rates applied will depend on the actual terms and conditions applied by the lender or the deposit taker.

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