The current economic climate has meant that the Bank of England’s base interest rate has increased dramatically in the last year. It’s risen gradually from 0.1% this time last year to the 3% we see as of November 2022. This base interest rate influences all other interest rates in the economy, from how much you’re charged on your mortgage and credit cards to the rates you are offered on savings accounts and other financial products.
Rising interest rates can be a good or bad thing depending on a few factors – things like how much you’ve borrowed and how much you have in savings are perhaps the most important ones for ordinary people. In this article, we’ll explore how you can benefit or at least protect your interests as much as possible with interest rates continuing to rise.
Choose your savings accounts wisely
With high interest rates, you need to manage your savings wisely to ensure you benefit as much as possible. This entails picking and choosing the best savings account online to maximise interest earned on your cash savings. Fixed-rate savings accounts usually offer the highest interest rates but you’ll more than likely have to deposit your money for a set period without withdrawals.
This is very similar to another high-interest option called bonds which will offer you a guaranteed fixed rate to lock away your money for a year or more. By maximising your potential interest earned on cash savings, you can at least see some return on your savings – but it’s important to understand that inflation rates will eat away at your savings in the long term if inflation rates are higher than interest rates.
Tackle your high-interest debts
A good way to protect yourself against further rises in interest rates is to tackle all your high-interest debt before you end up having to pay more in repayments. Any variable rate debts that you owe will increase in line with Bank of England base rates and these are expected to increase further in the coming months and years. By paying down high-interest variable debts, you could save yourself hundreds or even thousands in the near future.
If you have any low fixed-rate and long-term debts such as mortgages, these aren’t an as high priority because these will incur less interest than high-interest debts. Hopefully, you were able to find a good deal for remortgaging if yours was due this year, or you could have been smart enough to lock into a long-term fixed rate in the past few years.
These are two strategies that can help you to get ahead while interest rates are high and likely to rise further. If you don’t have a grip over your personal or family finances then be sure to review your situation as soon as possible.