Checksies ✅

Money things to read, money things to do.

3 August 2018

Hello

Hi, this is Checksies, a newsletter about how to do money. It's written by @annagoss and @rod, who are not financial advisors.

It’s been a while. Sorry about that. Checksies is still alive though - this is issue number 7, and it's a quick one on interest rates. Feedback welcome. If you’re enjoying Checksies, please do tell your friends to sign up here.

Yesterday the Bank of England increased interest rates from 0.5% to 0.75%. What does that mean to you? Should you do anything?

For debts and loans

Most loans are on a “fixed” rate, so their interest rate shouldn’t change. But for new loans, because it just got more expensive for high street banks to borrow money, it will get more expensive for you to borrow money from the banks. UK households have increasing debt, so this is a concern.

Action! You could pay off your debt faster, which will reduce the total amount you have to repay. If you have several loans, you could look at consolidating your debt into a single lower interest loan. These are good things to do regardless of what the interest rate is.

For savers

Interest rates should eventually go up a bit on saving accounts, though they might not jump 0.25%. But because inflation is 2.4%, you still might not be able to find a saving account that actually grows your money once inflation is taken into account.

Action! You could look around for a better interest rate deal for your emergency fund, but remember to keep it instant access. Because accessing it in an emergency is more important than growth.

For mortgages

Standard, tracker and variable rate mortgages
35% of UK mortgages are tracker or variable rate, and interest rates on these will go up. “Tracker” means that your lender will immediately increase the interest rate you pay by 0.25%. “Variable” means that your lender will probably increase the interest rate you pay in the next few weeks.

Here’s what it means in monthly cost: “A 0.25 per cent rise would translate to small increase in monthly payments from £508 to £519 for a household with an £87,000 loan - the national average. A borrower with a £250,000 mortgage on a typical standard variable rate deal of 3.99 per cent would need to find £400 extra per year.”

Action! You might remortgage, fixing your deal for a few years - there are some good 5 and 10 year deals at the moment. Our guide on mortgages is here.

Fixed rate mortgages
If you have a fixed rate mortgage, nothing will change. But when you come to remortgage in future, the deals will probably not be as good as they were a few months ago.

Action! Consider over-paying your mortgage - when you remortgage you’ll get access to better interest rate deals if you can reduce your “loan to value” percentage. You can usually overpay by up to 10% of the outstanding balance each year, but check with your lender.

For prices, the property market and the stock market

Who knows what will happen because there are many factors influencing prices and markets. We say: keep spending less than you earn, and save and invest the rest.

You can tell us what you’d like to see us cover @checksies or by replying to this email.

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Small print

We’re not independent financial advisors, so this isn’t financial or investment advice. Before spending money on financial products, you should talk to an Independent Financial Advisor. The ones you want are qualified as “Chartered Financial Planners”, and you can find one here. We’re in the UK, which means we don’t understand anything about advice, money or tax in other countries. We have biases. We hold shares in whatever Vanguard thinks is appropriate. We may also hold shares in individual companies, for instance our employers. We’re trying to work out what’s best to do, just like you are. Look after each other everyone.