Interest rates are increasing. Will your finances be affected?

As you may already be aware, in early November 2022, the Bank of England (BoE) raised the base rate to 3% – its highest level since 2008.

This is the BoE’s eighth base rate hike since December 2021, when the interest rate stood at just 0.1%. The rate was lowered when the Covid-19 pandemic hit the UK in March 2020, to support savers and borrowers during a financially precarious time.

Now, as public spending rises and international volatility pushes up demand, inflation has risen, reaching a 40-year high of 11.05% in the year to October 2022.

So, the BoE has continuously raised the base rate in an effort to slow public spending and curb inflation.

The BoE’s inflation target remains at 2%; in their latest Monetary Policy Report, the BoE states it is “our job” to return inflation to the target, and that “we expect inflation to fall sharply from the middle of next year”.

While it may be tempting to focus solely on how inflation could affect your finances, it is important to take note of the impact, both good and bad, that increasing interest rates could have on your wealth too.

Read about how rising interest could affect your investments, cash savings, and debts in the coming months.

Your cash savings could see more positive returns after a period of extremely low interest

One positive outcome of rising interest could be that your cash savings see increased returns after a period of negligible growth.

Indeed, it is likely you keep a chunk of your wealth in cash for emergencies and extra expenditure, such as holidays, school fees, and one-off household outgoings.

Despite diligent saving, in the past year, your cash savings may have been undervalued in real terms.

With the base rate remaining under 3% until recently, and inflation at 10.1%, your cash has likely not stood up equally against the soaring inflation rate.

Nevertheless, with interest standing at 3% (and predicted to reach new heights before the end of 2022), your cash savings might yield better returns as a result. For example, Moneyfacts reports that, as of 21 November 2022, the highest interest available on an easy access savings account is 2.5%.

Although your cash may still be taking a hit with inflation in double figures, better returns could build up and make you feel more confident about tackling the cost of living crisis.

Your mortgage and other debt repayments may have become more expensive with immediate effect

When it comes to mortgages, the impact of a rising base rate, along with Kwasi Kwarteng’s autumn mini-Budget throwing financial markets into disarray, has worried some borrowers.

If you are on an existing tracker- or variable-rate mortgage, you may already have noticed your repayments rise this year.

Alternatively, an existing fixed-rate mortgage might provide respite for now. However, when it comes to renewing or switching your mortgage in the coming months, any new rate you are offered is likely to be higher than the one you’ve been paying in recent years.

For example, the Guardian reports that the average two-year fixed-rate home loan increased from 4.74% to 6.65% between 23 September and 20 October 2022.

Since then, rates have stabilised somewhat; Moneyfacts reports that, on 21 November 2022, the leading two-year fixed-rate mortgage of £218,000 on a home worth £500,000 stood at 5.20%.

Nevertheless, no matter what type of mortgage you opt for, your repayments are very likely to be more expensive when your deal ends than in recent times.

Luckily, your Kellands financial planner can connect you with experienced brokers who can help you switch your mortgage, or take out a new one, while interest rates remain high.

Your investments could continue to experience volatility in light of rising interest rates

One key reason the BoE is raising the base rate is to restrict consumer spending, which in theory should lower the price of goods and services.

However, one knock-on effect a slow in spending could have is that market values could dip. If companies are not as profitable, share prices may fall, and your investment portfolio could see a downturn as a result.

Indeed, your investments have likely already taken a hit this year. The volatility experienced during the pandemic has unfortunately prevailed, with the Russian invasion of Ukraine, China’s Covid-19 lockdowns, and political disarray in the UK causing many asset values to dip significantly.

Nevertheless, there is no need to panic. If rising interest rates affect your investments, this change is likely to be short term, and may not affect your long-term investment plan at all.

Plus, your Kellands financial planner can regularly review your portfolio and offer expert advice that might bring you the peace of mind you need while markets fluctuate.

Get in touch

For a conversation about how rising interest rates might affect your finances, and how to prepare for potential future increases, email us at, or call 0161 929 8838.

Written by Madeleine Goode.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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