There is a huge amount of press speculation, fuelled by recent comments made by the Governor of the Bank of England, that the base rate will rise before Christmas. Inflation has reached 3% and is likely to rise further, which is putting more and more pressure on the Monetary Policy Committee (MPC) to act. And news of stronger than expected economic growth in the third quarter of the year, means now could be the ideal opportunity to make the first base rate rise in a decade.
So, taking steps today to ensure your finances can deal with an interest rate rise is essential.
Being able to borrow money cheaply is a double edged sword, encouraging people to get into debt, but sometimes by far more than they can afford. A contraction in the supply of credit coupled with a possible increase in the Bank of England base rate for the first time in a decade, could represent a debt crisis for many who have never seen their monthly repayments increase.
According to the Money Advice Service, almost half of us are in debt and the average amount owed is £4374 (excluding student loans and home loans).
A report by UK Finance found that Britons spent £17 billion on credit cards in August this year, with the over 55s reaching an all time high, having an average balance of £1,052 on a credit card.
Just as concerning, Bank of England statistics state that 43% of homeowners are on variable or tracker rates. On an average mortgage of £125,000 an increase of 0.25% would increase monthly payments by £15 to £665*. That would amount to an extra £185 per year and while those on a fixed rate mortgage would be protected, this is would be only until the end of the fixed term.
So, in theory, a rate rise of 0.25% would mean a higher monthly bill for millions and while the impact of the first hike may be small, if this increase is just the start, acting now will help you future proof your finances.
Make sure you know what your monthly outgoings are and how much you have left each month after paying all your bills and start to build up your savings. You don’t have to save huge amounts; just making a small change - for example forgoing your daily coffee - and saving £2.50 per day could, over 252 working days, saves you £630.
The Bank of England meets next Thursday, 2nd November to decide whether to increase interest rates or not. Be the first to find out if there will be an increase by following us on twitter @savingschampion or sign up to our newsletter.
Savers have suffered years of rock bottom interest rates, and millions will be cheered by news of a likely rise but as always our advice is to be active and not wait for a rate rise. For more information on the best rates look at our Best Buy Tables or call our savings experts today on 0800 0119 705 and make sure you are getting the best rates in the market.
*Nationwide Building Society