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Protect yourself against rise in interest rates

By Martin Lewis

Prepare for financial history.  On Thursday 2 November for the first time in a decade, at the Bank of England meeting it’s predicted to vote to increase interest rates. If you’ve credit card, mortgage debt, or savings the sooner you act to protect yourself the better.

The source of the prediction is unimpeachable - Bank of England governor Mark Carney, who said: "In the relatively near-term we can expect interest rates would increase somewhat."  Combine this with the fact inflation is at a five year high, and while nowt’s certain a rise from 0.25% to probably 0.5% looks on the cards. 

So I wanted to give you enough time to take key actions now in case it happens (and even if it doesn't, most of this is good to do anyway)... 

  1. MORTGAGE HOLDERS: Check immediately if you're on the best possible deal.  If not you may be able to save £1,000s. 

    Those on fixes won't see any change until their deal ends. Yet for those on variable or tracker mortgages a 0.25% rise means roughly £200 a year more per £100,000 of outstanding mortgage. Worse, many, especially those on lenders' standard rates, are already massively overpaying.

As @matthewogram tweeted me: "@MartinSLewis used your remortgage guide to swap products. 5.49% down to 2.10% 5yr fixed. £230 per month saving! Thanks muchly!" That's nearly £14,000 saved over the 5 years. 

And while mortgages are currently at all-time lows, a rate rise will likely signal the beginning of the end of that. So check now if you can save…

-         Take 2 mins to benchmark the best possible deal. My mortgage best buys comparison at www.mse.me/mortgagebestbuys includes all deals available to brokers, and direct only deals. 

-        Finding a cheap deal isn't enough - you need to get accepted.  Your credit history is a huge part of whether you'll be accepted for any type of credit, including a mortgage. My free www.mse.me/creditclub shows your score, gives you access to your Experian credit file, and has tips for how to boost it and www.clearscore.com will show you your Equifax file.

It’s not just about credit score though. Lenders also do affordability tests. These stress test affordability if rates were 6% or 7%.

A good mortgage broker can help match your circumstances to deals that will accept you – as they’ve information that isn’t available to the public. To find a local broker ask friends for recommendations or use www.unbiased.co.uk or www.vouchedfor.co.uk to find one. Alternatively some phone-only brokers such as www.landc.co.uk are fee-free.

  1. SAVERS: Rate rises are good news, but consider giving yourself the flexibility to move - eg Post Office 1.27% easy access. 

Low interest rates have punished savers, especially older people who saved hard and planned to live off the interest. So a rate rise is positive. In fact, savings rates have already risen, as the market's taken note of the general direction of travel. 

Check your savings rates, if it’s less than 1%, it's a rip off, move it. For updated full best buys see www.mse.me/topsavings, though in brief, at the time of writing…

The www.postoffice.co.uk online account pays 1.27% AER and it’s easy access, so you can withdraw money whenever you want. Though the fully UK regulated www.bankofcyprus.co.uk pays 1p more per £100 saved at 1.28%. If you’re prepared to lock cash away without access you can earn more. App-based www.atombank.co.uk pays 1.8% for 1 year or 2% for 2 years

If your money's in a poor paying account now, just get it sorted while it's on your mind. Yet if you're a regular switcher, fixing today may be premature if rates are about to rise - and fixing longer is riskier if we see rates continue to move up after that. So it's worth considering staying easy-access for short term flexibility, then fixing in a few weeks.

3. EXISTING CREDIT CARD DEBT: The top debt shifting 0% deals are already worsening. If you pay interest, check NOW if you can cut it. 

I'd push anyone who pays interest on existing credit card debt to urgently check if you can do a balance transfer – where you shift it to a new card, with a cheaper interest rate. Of course for most with ongoing debt the challenge is being accepted.

My balance transfer eligibility calculator at www.mse.me/BTeligibilitycalc shows which 0% deal you're most likely to get. As Kelly emailed: "Legend. Used the eligibility calc, got 35mths 0% and shifted £11,000 from 29.9%. Shocked by the savings.” (That’s likely nearly £5,000 saved if repaid in the 35mths).

Of course, with credit card APRs already often over 18%, a 0.25% rise won't make much odds. Yet after years of ever better 'best ever' 0% deals, things are now moving the other way, due to warnings about irresponsible lending and a rate rise would add to that mood music.  So I’d act quickly.

Six months ago you could shift debt for 44mths at 0%. Here are the best buys as I write…

 - Longest 0%: www.mbna.co.uk up to 39mths, 1.99% fee (20.9% rep APR after).
- Longest 'non up to' 0%: www.virginmoney.com 39mths, 2.4% fee (20.9% rep APR after).
- Longest NO FEE 0%: www.halifax.co.uk up to 29mths (18.9% rep APR after).
- Longest 'non up to' NO FEE 0%: www.sainsburysbank.co.uk 28mths 0%. It does charge a 1.5% fee, but then refunds it within 60 days (18.9% rep APR after).

If you do a balance transfer, as always follow the golden rules.

a) Clear the card or transfer again before 0% ends or you pay the APR.
b) Never miss the min monthly repayment or you can lose the 0%.
c) You must usually do the balance transfer within 60/90 day.

Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 12 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip.

 

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