Bank of England announces key interest rate decision – see how your mortgage, credit card and savings are affected

Any change to the Bank’s rate can have wide-reaching consequences as it directly influences both:

• The cost that lenders charge people to borrow money
• The amount of savings interest banks pay out to customers.

When the Bank of England lowers interest rates, consumers tend to increase spending.

This can directly affect the country’s GDP and help steer the economy into growth and out of a recession.

In this scenario, the cost of borrowing is usually cheap, and the biggest winners here are first-time buyers and homeowners with mortgages.

But those with savings tend to lose out.

However, when more credit is available to consumers, demand can increase, and prices tend to rise.

And if the inflation rate rises substantially – the Bank of England might increase interest rates to bring prices back down.

When the cost of borrowing rises – consumers and businesses have less money to spend, and in theory, as demand for goods and services falls, so should prices.

The Bank of England is tasked with keeping inflation at 2%, and hiking interest rates is a way of trying to reach this target.

In this scenario, the losers are those with debt.

First-time buyers will lose out to cheaper mortgage rates, and those on tracker or standard variable rate mortgages are usually impacted by hikes to the base rate immediately.

Those on a fixed-rate deal tend to be safe if they fixed when interest rates were lower – but their bills could drastically increase when it’s time to remortgage.

The cost of borrowing through loans, credit cards and overdrafts also increases when the base rate rises.

However, the winners in this scenario are those with money to save.

Banks tend to battle it out by offering market-leading saving rates when the base rate is high.

Check your bank balance on a regular basis – knowing your spending patterns is the first step to managing your money

Work out your budget – by writing down your income and taking away your essential bills such as food and transport
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs

Pay off more than the minimum – If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker

Pay your most expensive credit card sooner – If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)

Prioritise your debts – If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them

Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay

Get advice – If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further

Groups like Citizens Advice and National Debtline can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans