The Bank of England has just raised interest rates for the first time in a year. We list five ways to boost your finances in response.
The Bank of England has announced the first interest rate move in a year, up 0.25% to 4.75%. The majority of forecasters expected no change, so the surprise affected the stock market, sending the FTSE 100 down 100 points in just a few minutes.
Banks try to predict where interest rates are going, and we can see their collective thoughts by looking at what are called LIBOR rates. At present, LIBOR rates show banks expect the Bank of England base rate to increase a little bit more to 5% within 12 months time, i.e. a quarter point higher than they are now.
But enough of that! What you want to know is how to beat the rate rise. All it takes is a little financial re-organisation.
1. Fix your mortgage rate
Mortgage companies tend to increase their rates pretty much as soon as the Bank of England announces a rise, which means that many of them will have done it by the time you read this article! A quarter-point rise may not seem like much, but an interest-only mortgage of £100,000 will cost about an extra £21 per month, or £250 per year. With another rate rise predicted, it's a good time to consider fixing your mortgage rate, especially if you're already on a tight budget.
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2. Switch your credit card now!
An increase in credit card rates might follow hot on the heels of a rise in mortgage rates, but already a typical credit card charges interest at a massive rate of 15% a year. Before this goes up even further, you should switch to cheaper cards. You have two main choices:
- 0% balance transfer cards - You can move your debts to an interest-free card at a cost of 2% to 3% of your outstanding balance. At present you can find a lot of cards offering interest-free periods of six months, and some reaching 12 months or beyond!
- Fixed-rate for life cards - Some cards allow you to fix the interest rate for the life of the balance. Whether you pay it off in three months or three years, the interest rate will remain the same. As interest rates are still pretty low, and possibly rising further in the next twelve months, this seems like a fair bet. You can get fixed-rate cards for less than 6%, but maybe not for much longer!
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3. Switch your debt to a fixed-rate personal loan
If you want to make sure you're not tempted to use plastic with higher interest rates, an unsecured personal loan is probably best for you. Most of these are on fixed rates, so you don't have to worry about future rate rises once you've taken them out. Again, you need to move fast, because loan rates are about as cheap as they've ever been, but may move higher as a result of the Bank's recent decision.
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4. Look out for the next new Best Buy savings account
An increase in rates is great for savers, but it usually takes quite a few weeks for banks to pass on the benefit of a rate hike to customers. It's possible that the best savings accounts of today will not be top of the table by the end of this month. You should keep an eye on the best savings accounts over the next few weeks and switch to a better deal, all of which you can do through the Fool.
5. Track interest rates with a Mini Cash ISA
Mini Cash ISAs are tax-free savings accounts. You can get base rate tracker ISAs, which means that you benefit immediately from any further increases in the base rate.
Take a look at someISA deals here.
It's simple. Compare, switch and save money on credit cards, loans, mortgages and savings.