Should you worry about rising interest rates?

Interest rates are rising as central banks look to combat soaring inflation. In the UK rates now stand at 1%. But what does this mean? And should you worry about rising interest rates?

In this post I’ll cover:

  1. What are interest rates?
  2. The impact on mortgages
  3. Rising interest rates and credit cards
  4. The impact on savings
Rising interest Pinterest pin.

Picture of multiple pink piggy banks floating on a grey background.

What are interest rates?

Simply put, an interest rate tells you cost of borrowing and/or the reward for saving.

For borrowers, the interest rate is the amount you are charged for borrowing money. The higher the percentage, the more you have to pay back on top of your original loan.

Meanwhile for savers, the interest rate tells you how much money will be paid into your account, as a percentage of your savings. The higher the rate, the more you will get.

A small change in interest rates can have a big impact, so it’s important to know what’s going on…

City scene - Bank Station and the Bank of England

The impact on mortgages

Unfortunately, rising interest rates are not good news for those with – or looking to get – mortgages.

Banks will likely pass on the rise to variable rate mortgage customers as soon as possible. In fact, Halifax accidentally announced its rise before the Bank of England had actually made its decision.

For the 1.1 million people on a standard variable rate (SVR) mortgage, or the 850,000 with a tracker, costs will rise.

Someone with a £300,000, 25-year, repayment mortgage on the average SVR could see their monthly payments go up by over £40 a month. After 4 consecutive rises, this will be starting to take a tool.

A lot of mortgage holders are protected for now as they have a fixed rate mortgage.

However, if you have a fixed rate mortgage you may feel the impact sharply once your deal expires.

Rising interest rates and credit cards

It may seem very strange that credit cards are related to the Bank of England and rising interest rates at all.

There’s already a huge gap between a 1% base rate and the average credit card rate of 18%.

However, the cost of doing business is one of the factors lenders consider when setting rates, so when rates rise, they’ll often be passed directly onto credit card holders. This means that credit card rates may increase even further.

If you have debts, you could shop around and see if you can get a more competitive deal elsewhere.

Before you apply for a cheaper deal, it’s worth using the Moneysavingexpert credit card eligibility tool. This will give you an idea of whether you will qualify, without doing a full credit check that shows up on your credit record.

Of course, the best option is to pay off your debts as quickly as possible. If you’re struggling with debt, do seek advice from an independent charity like StepChange.

In general, regardless of interest rates, it is sensible to think carefully before using a credit card, particularly if you’re struggling to make ends meet each month.

While it may feel like a good emergency solution to rising prices in the short term, once you have debts to repay and interest building up, it quickly becomes yet another part of the problem.

Man holding credit card to card reader

The impact on savings

In theory, rising interest rates should be good news for savers. But, there are worries it may not be as good news this time round.

So far high street banks have been very reluctant to pass on the rate rises to savers. Instead, it seems they are preferring to keep the extra profits to themselves.

However, there is some positive movements.

Bank of England figures show in March, the rate on the average new fixed-rate savings account rose 0.15 percentage points to an average of 0.92%. The average easy access rate crept up 0.02 percentage points to 0.12%.

These may be small increases, but they’re moving in the right direction at least.

If you’re thinking of tying your money up for a period in return for a higher interest rate, you might be tempted to sit tight given that rates are rising at the moment.

It’s likely we’re going to be stuck in a cycle of rising interest rates for quite a while yet, so you may risk getting stuck in wait-and-see mode if you opt for this.

Instead, you could try to fix for a relatively short period to take advantage of today’s rates, and then fix again for even more interest when that rate expires.

Either way, saving is always better than not saving. Keeping money aside for a rainy day or your future is always going to be beneficial!

Don’t forget to follow me on social media @Katie20Percent to keep up to date with all my latest posts.

Did you know I offer freelance writing services and personal finance workshops and talks for schools, workplaces and organisations? I also regularly feature in the media. Get in touch via or reach out on Twitter @Katie20Percent if you’d like to find out more.

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