Interest rate hikes are coming – here’s how to protect yourself

According to Annabelle Williams of Nutmeg, an investment firm, anyone with the standard variable rate would now have to switch to a fixed rate deal to benefit from a low interest rate for several years.

She said: “You can save hundreds of pounds each month by doing this. Over a mortgage, a lower interest rate, even with a small difference, can mean paying tens of thousands less for your home. . “

Those who go for a fixed rate mortgage should remember that short-term agreements such as two-year fixed rates tend to have the lowest rates, while 10-year fixed rates tend to be higher. students.

“If you leave the deal before it ends you will pay a penalty, so weigh whether you want to stay in your current house or move out, and if you want to buy another house in the next two years, you could move on. to a two-year fixed rate mortgage and pay very low interest, ”she said.

Homeowners who are considering remortgage may have little time to act, said Sarah Coles of Hargreaves Lansdown, the brokerage firm. Banks won’t wait for interest rates to rise for new mortgages to start getting more expensive and fix them early.

“This means it’s worth looking for a new mortgage as soon as possible. Right now you can still find incredibly cheap mortgages, so now is a great time to start looking,” Ms. Coles added.

How will rising rates affect my savings?

The good news is that savings rates could emerge from their record rut. No widely accessible savings account has been able to offset the eroding impact of price increases by outpacing inflation. This means that the cash savings pots are declining in real terms below current rates.

Most large bank accounts pay only 0.01 pc interest. On a balance of £ 50,000, that would only earn £ 5 a year. Even savers who have been successful in securing the best deals risk losing hundreds of pounds.

Rising interest rates could push savings rates up, making it more attractive to set aside money, although it may take a long time to materialize because, unlike rising mortgage costs , this is accompanied by a late response, warned Mr. Geddes. “Interest rates on savings are unlikely to rise as fast as mortgage or other rates,” he said.

Anyone with an easy-to-access savings account with a top-notch bank shouldn’t wait for rates to rise before switching to a more competitive alternative, said Ms Coles of Hargreaves Lansdown.

It can be tempting to wait for a rate hike to get a better deal if you plan to put money in a fixed rate account, but it can get expensive. Ms Coles said:

“The risk is that you end up waiting longer than you expect when your money is in a much less rewarding place. Alternatively, it may be a good idea to repair for a shorter period. The Bank of London and the Middle East is offering 0.85% over six months. and Gatehouse Bank will pay 1.51 pc if you repair for a year.

Will my debt get more expensive?

Yes, higher interest rates also mean that payments owed on credit cards and loans can be costly. Ultimately, this means that it costs more to borrow from banks, and lenders tend to pass these costs on quickly.

Savers with cash should prioritize paying off high-interest debt before rates rise and the cost of their loans increases.

If you have overdue credit card debt, it’s worth switching to an interest-free offer, according to Williams. It’s possible to transfer your balance at an interest-free rate that lasts about two years, she said.

“This gives you plenty of time to pay off debt as long as you make a plan and set up a direct debit to pay more than the minimum repayment amount each month.”

Big purchases, such as buying a car or home renovations, are often left behind in the spring, but waiting that long could get expensive, Ms Williams said. “If you are planning something that requires significant spending, this would be the best time to take out a loan while the rates are still good. “

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