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Navigating Interest Rate Rises: How to Save

UK interest rates have steadily risen as the Bank of England attempts to stifle rising prices. This can be worrying for UK residents, especially as rates have increased 14 times in a row (as of August 2023).

However, there are some strategies you can use to navigate these rises and potentially save money throughout the process. This blog outlines some of the effects of interest rate rises and what you can do. Read more below.

Why do Interest Rates Rise?

Interest rates rise to match high inflation. Currently, UK inflation is high, meaning the prices of products and services have increased. For example, food inflation is at 14.9%, meaning it is more expensive to buy groceries now, making the cost of living more expensive.

UK interest rates are set by the Bank of England and the Monetary Policy Committee. These organisations raise interest rates which makes borrowing more expensive. This leaves people with less disposable income, so demand for goods and services drops, and inflated prices follow.

How to Navigate UK Interest Rate Changes

Though saving money in 2023 seems impossible, some strategies can help you protect your finances. Here are some factors you can consider.

Consider Your Mortgage

Interest rates heavily affect mortgages and rises can leave you paying much more depending on your deal. Here are some possible solutions for homeowners.

There is no “catch-all” solution that will suit everyone. However, adjusting your mortgage can help your personal finances in the short term. When in doubt, consult a financial advisor for a professional opinion.

Monitor House Prices

As mortgage rates soar, house prices drop. In 2023, UK house prices dropped at the fastest annual rate in 14 years. If you want to snap up some affordable property, now is the time to start shopping.

Shop Around For Savings Accounts

Interest rate rises strike fear into people’s hearts. But it can be good if you are focusing on saving. As interest increases, the rates in Cash ISAs and savings accounts also grow. This allows your savings to make you more money while sitting in an account.

Building societies and banks compete to offer the best interest rates. Shop around now to ensure you secure a reasonable rate for your funds.

Examine Your Pension Plans

Similarly to savings accounts, interest rates are good for anyone buying into a guaranteed retirement income (annuity).

Annuity rates pay a guaranteed income for a fixed term or life, and they are linked to gilt yields. The income you will get is tied to the day you purchase the annuity — therefore, buying on a high-interest day can positively affect your long-term personal finances.

Final Thoughts

UK interest rates are a prominent topic at the moment, and they won’t disappear from the news cycle anytime soon. With these strategies, you can protect your finances from negative impacts and even benefit your future self.

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