In 2024, the Bank of England made some big changes to interest rates, directly affecting mortgages, credit cards, and personal loans.
So, what does this mean for your finances? How will future changes affect how much money you have in your wallet?
Let’s use the scenario to help you understand how fluctuations in interest rates impact your financial wellbeing.
Let’s break it down.
What is the bank rate?
The Bank of England’s base rate—often just called the ‘bank rate’—is the interest rate it charges banks and financial institutions for loans.
This, in turn, influences how much interest you pay on borrowing, from mortgages to credit cards.
Interest rate changes in 2024
In August 2024, the Bank of England lowered the base rate from 5.25% to 5%. This was the first cut since August 2023.
More cuts followed: in November 2024, it dropped to 4.75%, and in February 2025, it went down again to 4.5%.
The goal? To stimulate economic growth while balancing inflation concerns and a slowing economy.
How do these changes affect mortgages?
Mortgage rates tend to move with the bank rate, but how much it affects you depends on your mortgage type:
- Tracker mortgages: These follow the bank rate directly. If you have a tracker mortgage, your interest rate probably dropped along with the recent cuts, meaning lower monthly payments.
- Standard variable rate (SVR) mortgages: SVR mortgage rates are set by lenders, so they don’t always move with the bank rate. Some lenders may pass on the rate cuts, while others might not.
- Fixed-rate mortgages: If you’re locked into a fixed-rate deal, your payments stay the same until the term ends. However, if you’re nearing the end of your deal, new fixed rate offers could be lower than before, making it a good time to shop around.
What about credit cards and personal loans?
Credit card and personal loan rates don’t always follow the bank rate as closely as interest rates are set by the provider.
Credit card rates are set higher than the bank rate anyway. Loan rates are set for the duration of the loan.
If things so change, here’s what to expect:
- Credit cards: These rates are influenced by multiple factors, including economic conditions and your credit profile. A base rate cut doesn’t guarantee lower credit card rates.
- Personal loans: Many personal loans have fixed interest rates, so if you already have one, your payments won’t change. But if you’re thinking about taking out a new loan, rates could be more competitive now than before.
Impact on Savers
Changes to the bank rate also affect savers, particularly those with savings accounts, ISAs, and fixed-term deposits.
- Easy access savings accounts: These tend to follow the bank rate. When rates fall, banks often lower the interest paid on these accounts.
- Fixed-rate savings accounts: If you locked in a fixed-rate savings deal before rates started dropping, you’re in a good position. However, new fixed-rate deals might offer lower returns.
- ISAs (Individual Savings Accounts): Cash ISAs are affected similarly to regular savings accounts. Lower interest rates mean the returns on tax-free savings may not be as attractive as before.
- Premium bonds and other investments: While premium bonds don’t pay traditional interest, the prize fund rate is influenced by the bank rate. A lower base rate might mean reduced payouts over time.
For savers, falling interest rates mean it’s more important than ever to compare savings products and ensure your money is working as hard as possible.
What should you do now?
With these changes, here’s what you might want to consider:
- Review your mortgage: If you’re on a tracker or SVR mortgage, check if your lender has reduced your rate. If your fixed-rate deal is ending soon, start looking at new offers.
- Check your credit agreements: For credit cards and personal loans, keep an eye on your interest rates. They might not change right away, but staying informed helps you manage your debt better.
- Consider refinancing: If lower interest rates mean you can refinance at a better deal, it might be worth looking into—just be sure to check any fees or penalties.
- Stay updated: Interest rates and lending policies shift over time, so keeping up with changes ensures you’re making smart financial choices.
How bank rates impact your finances
The Bank of England’s rate cuts in 2024 are good news for some borrowers, but their impact depends on what type of loan or mortgage you have.
It’s good news for borrowers but not such good news for savers.
Whichever side of the equation you’re on, keep an eye on the bank rates during 2025 because the fun isn’t over yet!
