What will a rate rise mean for you?

We've all become accustomed to rock bottom interest rates. The Bank of England base rate has been below one per cent since 2009 and is currently at its lowest ever rate of 0.1 per cent1

But what goes down sometimes must come up, and markets are now predicting that the Bank of England will make a decision to put up interest rates at some point soon.

That’s because inflation is rising, and the Bank is responsible for keeping inflation at a target of two per cent. Andrew Bailey, the Bank’s governor, has already given strong indications that he wants to use rates to control rising prices.

“We at the Bank of England have signalled, and this is another such signal, that we will have to act,” he said at an online discussion organised by the Group of 30 consultative group2

Those fearing or hoping for, a return to 1970s and 1980s double digit rates will not see these come to pass, but we should all be braced for some upward movement. Here’s how rate rises could affect your finances and what you could do to prepare.

Your savings

Cash savers have struggled to find returns on their money that keep pace with inflation, meaning that money stashed in savings accounts loses value over time. A rate rise may lead to better savings rates, but with inflation as high as it is it is still hard to find good deals.

Figures from Moneyfacts this month reveal that rates are rising slightly and there is more choice on the market, but a rate rise could push this up still further. Keep your eyes out for better deals to switch cash savings in coming weeks, but you will need to be realistic. The average easy access savings account still only paying 0.18 per cent at present, there is still little incentive for cash savers. 

Your mortgage

Unless your mortgage is fixed, a rate rise will increase your monthly payments. Mortgage companies may begin to withdraw cheap deals due to the likelihood of a rate rise.
If you are on your lenders’ standard variable rate, now might be a good time to look for a cheaper deal to price in current low interest rates before an announcement is made.

Your investments

Rate rises affect the value of stocks and shares as well as rates on cash savings. Shares tend to fare better than government or corporate bonds when rates rise, but companies find it expensive to service their debt. While some sectors, such as banks, may do well out of rate rises, others such as tech companies tend to be more affected.

Because government bonds (gilts) do particularly badly when rates rise, those who are approaching retirement and have pensions that are ‘lifestyled’ (that is, automatically having their investments moved more into bonds than equities because they are seen as less risky) will be particularly affected by rate rises.
Speaking to your financial adviser about how to position your portfolio for a rate rise may be wise at this point.


The price of your home, and any investment properties, may also be affected by rate rises. The stamp duty holiday coupled with low rates and easily available mortgages has pushed prices high. Rising interest rates could take some of the heat out of the market.

If you are thinking of buying or selling a property, it makes sense to take this into account, though with demand still exceeding supply in the UK property market it is unlikely to be a huge fall.

  1. https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp

  2. https://www.reuters.com/business/bank-england-will-have-act-contain-inflation-bailey-2021-10-17/