Personal Savings Blog | February 2018 – Interest rates

According to a recent poll of our savers*, most would welcome and indeed expect an interest rate rise this year.

Well, following recent comments from the Bank of England, market commentators predict that the Base Rate could increase twice this year and this could have a positive impact on savings rates.

Of course rate rises result in both winners and losers. While this would be positive news for savers as it is likely to lead to an increase in the interest rates paid on savings accounts, meaning you could get a greater return on your cash. While borrowers, for instance those of us with a variable rate mortgage, could end up paying more back than we are used to.

Whether saving or borrowing, it is vital that you understand interest rates. Unfortunately, it is not always easy to get your head around interest rates, with most respondents to our survey* saying they found explaining interest rates harder than cooking a roast dinner, understanding their credit rating, changing a car tyre or explaining the offside rule.

So what is interest and how can it impact me?

It may sound obvious, but an interest rate is the percentage rate paid on savings or charged on a loan. Basically, for savers, it is the rate your bank will pay you for borrowing your money, for borrowers it is the cost of borrowing that money.

For example, an annual interest rate of 1% means £1 is paid in interest for every £100 saved or borrowed. At this rate, a saver with £10,000 in their account would end up with £10,100 at the end of the year, while a person that had borrowed £10,000 would end up owing £10,100. Interest rates on savings are usually expressed as an an Annual Equivalent Rate (AER) and on loans as an Annual Percentage Rate (APR). This means that the rate applies to a period of one year and is designed to allow you to compare interest rates for different lengths of savings deposit accounts or loans on a like-for-like basis.

Things get a little more complicated when you start talking about compound interest, but it is clear to see that a small change in interest rates can have a big impact on the amount you end up saving or paying back on a loan.

We believe it is worth shopping around to ensure you are getting the best deal. After all, it’s in your interest to be interested in interest rates.

Find out more about our Personal Savings and Business Savings accounts.

Stuart Hulme
Director of Savings and Marketing

*Hampshire Trust Bank surveyed its Personal Savings Customer Panel, which has 100 members, in December 2017.

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