A first interest rate drop in seven years from The Bank of England has caused quite a stir in the news over the last few weeks.
A historic low of 0.25% was announced, but what does it mean for consumers?
We’ve waded through the speeches, the big announcements and the expert’s opinion and created this handy infographic that simplifies the whole thing.
Who does the interest rate drop affect?
Bank of England governor Mark Carney has insisted that the banks will have no choice but to pass the savings from the drop in rates for tracker mortgages.
With one in five households having a tracker mortgage – 1.5m in total – this is good news for many.
It’s not so good news for fixed rate mortgage holders, 46% of people are currently on a fixed rate. Lenders do have discretion are are expected to totally ignore the cut according to the BOE’s top man.
Fixed rate savings accounts shouldn’t see any changes to their rate, the average interest rate on an Easy Saver account is a pretty paltry 0.65% and if the base rate mirrors it will get even lower – dropping by 0.4%.
Variable rate savings accounts will see their rates change so keep an eye on yours. If you find there is something better from another provider, you may want to consider switching providers.
About three-quarters of current accounts do not pay any interest at all, if yours does expect it to drop. If this is the case your bank should notify you accordingly.
The state pension will see no change whatsoever.
Share prices have been driven up by the Bank’s decision and private pension holders will see and increase in value.
Your credit limit and interest rate on a credit card are priced according to risk. For instance, if you apply for a credit card with an excellent credit rating your interest rate would be lower (sometimes much lower) than that of someone with a poor credit score.
It is detached from base rate and therefore will never be affected.
This is where loans differ from credit cards. Loans are connected to base rate of interest so you could well see your rate of interest fall.
Interest rates on very unlikely to change at all.
Good news for graduates! There is every chance you may have less interest to pay on your student loan from September – although with the rising cost of tuition fees it’s hardly likely the’ll be celebrating in the street.
There are winners and losers when it comes to the base rate of interest dropping. Savers have been getting a bit of a raw since the financial crash on interest savings rates so it won’t be much of a surprise to people to see them drop further again.
If you feel your new rate isn’t worth it, shop around to see what’s out there. Maybe even look into to investing it elsewhere.
Have you been affected – good or bad – by the interest rate drop?