What the Bank of England base rate means for current accounts

Understanding how the Bank of England base rate and inflation affect our personal finances can be tricky – use our guide to brush up on your existing knowledge and become savvier with your finances.

Kelly Whybrow Content Writer
minute read

How does the base rate influence my finances?

As the Bank of England charges the banks for lending, this in turn influences the interest rates banks and building societies give us when we borrow or save.

Borrowing: A low base rate of interest is a good thing if you want to borrow money (so that’s credit cards, loans and mortgages). It’s also great when it comes to making the economy active; the more we borrow, the more we spend and the greater demand there is for things.

Saving: However, a low base rate of interest is not such good news if you’re saving money, because it means the interest paid on your savings tends to be low too. Banks and building societies amend their interest rates to bring them more in line with the base rate and fellow competitors.

Current accounts: The Bank of England’s base rate is also likely to influence the interest rate your bank gives you for any money you have sitting in your current account. If you have an overdraft facility, then the interest rate you pay to use your overdraft may also change.

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How often does the base rate change?

The Bank of England base rate is set by the Bank of England’s Monetary Policy Committee (MPC), normally eight times a year. The base rate is there is to keep things in check and it changes as and when the Bank of England feels it is right to do so.

Most recently, August 2018’s base rate increased by 0.5% to 0.75%. This announcement by the Bank of England could impact those borrowing money, for example those with variable rate mortgages.

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