Rising Interest Rates

There will be many adults with mortgages and other lending commitments as well as savings who have never had financial responsibilities at a time of higher interest rates, so what are the important factors to consider?

If you currently have a fixed rate mortgage then you won’t be affected by an interest rate rise until your current term ends. If you have a mortgage ending in the next couple of years, you are likely to face much higher payments in the future, so you need to think about how this will affect your day to day finances along with rising fuel, food, and energy costs and whether in the long term you can afford the property and lifestyle you are accustomed to.

If you have a Standard Variable Rate or Tracker mortgage then you will have seen your monthly payments rise already and you have no protection against future rate rises. You might want to consider a fixed rate mortgage unless you plan to sell the property. It is important to weigh up the exit fees for a fixed term mortgage vs the shorter term costs of an interest rate rise.

If you have other borrowing such as a credit card or loan then you may also see your interest charges rise. Clearly it is never sensible to borrow large amounts on credit cards and if you have debt you should consider moving it to a 0% balance transfer card and make payments to reduce the debt as quickly as possible. Sensible budgeting and living within your means is important and you will find our guidance on how to do this in other blogs.

If you have savings then you may see the amount of interest you receive rise however you also need to consider the effect of higher inflation on cash savings and anyone with a large amount of cash should look at options such as accounts with higher interest rates or stocks and shares ISAs to make the most of tax free savings allowances and returns over a longer period.

Fixed rate savings accounts don’t usually allow you to make early withdrawals without any financial penalties so don’t lock away your money now without taking advice as rates are likely to rise further.

Cash ISAs will offer more flexibility if you are likely to need to access your money in the short term, but again check for penalties for accessing the money earlier than you planned.

If you have any debts it is sensible to pay those off first before building up savings, as the cost of the debt will outweigh the interest you earn on savings. If you have surplus cash you could also consider making additional payments to your mortgage, which can reduce both the length of the term of the mortgage and the interest paid.

Additional payments into your pension pot could also be considered and whilst this ties up your money for longer, you will receive both an immediate tax benefit to making the payment as well as the compound growth of the money.

Whatever your age or your wealth there are clearly many factors to consider with interest rates rising and if you would like help to keep your finances in check and to plan for your financial security, get in touch today.