Interactive Investor

Interest rates stay at 5.25%: what does it mean for personal finances?

interactive investor comments on what the pause in interest rate hikes means for savers and mortgage holders.

21st September 2023 12:43

by Myron Jobson from interactive investor

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Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Yesterday’s better-than-expected inflation reading was enough to convince the Bank of England to hold interest rates after 14 hikes in a row. But the decision was passed by the narrowest of margins by the Monetary Policy Committee.

“While the slowdown in the rate of price rises suggests that the previous rate hikes are working, it’d be premature to declare victory over inflation. You can’t hide from the fact that it remains over three times higher than the Bank of England's target. The road to rein in inflation remains an uncertain one.

“It may take some time for the full impact of the previous rate increases to filter through to the real economy, but the impact on personal finances have been more forthcoming.

“The hold in interest rates offers a degree of reprieve to Britons who have faced tighter credit conditions and higher borrowing costs than what they’ve become accustomed to over the course of the UK central bank’s aggressive two-year interest rate hike cycle to rein in inflation.

“The biggest winners from the Bank of England's decision are those with a tracker mortgage deal, who will breathe a huge sigh of relief, having been pummelled by a series of back-to-back rate rises, which resulted in higher monthly mortgage repayments. This cohort would have faced a £26 a month increase to their mortgage repayments if the bank pressed ahead with a 25-basis point increase to the base rate.

“Mortgage holders with a fixed-rate deal continue to be shielded from the recent movement in interest rates. However, it's important to keep an eye on the horizon, as once that shelter expires, they’ll likely have to contend with higher rates when refinancing their mortgage.


“Savers might not experience another uptick in the interest applied to cash stashed in savings – although some banks and building societies might not be done with passing on previous rate rises, having been slow off the mark to do so.

“Those who can afford to put money away for at least five years or more should consider investing for the potential of long-term inflation-beating returns that far outstrip savings rates.

“While past performance is not indicative of future results, savers can take courage in the fact that history shows that even a ‘middle of the pack’ fund is likely to outperform returns from cash savings interest over the long term - so, you don’t need to be an expert stock picker to benefit. The key is to give your money ample time in the market – at least five years - to smooth out the effects of stock market ups and downs.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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