Interest Rates Rise: Financial Experts Explain What NOT To Do

The mistakes to avoid on your mortgage, credit card, savings and more.
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The Bank of England has just announced the largest increase in interest rates seen in the UK for 33 years – and it’ll impact everything from credit cards to mortgages.

Put simply, an interest rate is the amount it costs to borrow money. And the base rate set by the Monetary Policy Committee (MPC) – a team of nine people who all work for the Bank – has been increased by 0.75%, taking interest from 2.25% to 3%.

It may not sound like a lot, but it’s a big deal. The rate has been put up in an attempt to bring down inflation, which is causing the cost of food, fuel and energy to skyrocket. Still, the Bank has said it expects the UK to suffer a “prolonged recession”.

With such alarming headlines, it can be temping to make big financial moves in a bid to protect yourself. But here are seven things financial experts do not want you to do:

1. Don’t panic

“Don’t panic if you have been listening to the media,” says Francesca Henry from The Money Fox. “Because if you have a budget and work out a good financial plan then you can be prepared.”

2. Don’t keep quiet about mortgage concerns

In a recent newsletter, Money Saving Expert Martin Lewis explained how interest rates impact mortgages.

“For each one percentage point your mortgage rate increases, expect to pay roughly £50 more a month (£600/year) per £100,000 of mortgage debt,” he said.

But Connor Campbell, personal finance expert at NerdWallet, has urged people to speak to their lenders about this instead of avoiding awkward conversations.

“If you’re worried, and on a fixed rate that ends within the six months to a year, it could be wise to speak to a mortgage broker to find out what options are available to you. People tend to think more long term when interest rates are high, and short term when they’re low. But this isn’t always the best idea for everyone,” he says.

If you’re on a variable or tracker mortgage, the same applies. Speak to your lender instead of burying your head in the sand.

If you find yourself struggling to keep up with mortgage repayments, you may be able to extend your mortgage term or switch to an interest-only mortgage.

Yes, you’ll pay more longterm. But if you’re facing immediate cashflow problems, it could be one solution.

2. Don’t rush to become a first-time buyer

It’s not that you 100% shouldn’t buy right now, but Campbell recommends asking yourself “whether you need to buy now”.

“There are reports that property prices are set to decrease over the coming year, so buying a property now, when prices are high, means you may need to borrow more than you may next year,” he says.

“However, the risk is that interest rates will continue to rise and even with lower property prices, the repayments could stay the same, or increase.”

If you’re wondering whether or not to get on the property ladder right now, look at your individual circumstances. Are you renting and getting screwed over by a dodgy landlord anyway? Or are you living with parents and can safety sit out the storm?

The market is uncertain right now, so as Connor says “the best suggestions I can offer are not to jump in with both feet and seek help and advice from an impartial expert”.

3. Don’t forget to pay off your credit card balance on time

With interest rates going up, Salman Haqqi, personal finance expert at, advises paying off your monthly credit card balance within good time.

“Most credit cards offer a grace period, which typically lasts 21 days from the date of your monthly statement. During this period you can settle off your minimum payment, before incurring interest charges. The minimum payment amount is set by your provider and detailed on your monthly credit card statement,” he says.

“If you are in a position to be able to do so, it can be beneficial to pay above the minimum monthly payment, thereby avoiding future hefty interest rate charges on your outstanding balance. In turn, this will also enable you to clear your debts at a swifter rate. Paying more than the minimum amount will also help improve your credit utilisation, which can be a factor that lenders consider when determining whether to lend to you.”

4. Don’t forget to utilise your savings

During times of financial turmoil, it’s tempting to hoard any savings you have. But Haqqi points out this might cost you in the long run.

“Although it is good to have a financial fallback in the form of savings, there are minimal benefits to this if you owe money on a credit card or overdraft. Using your savings to pay off your borrowing will typically provide for greater long-term benefits, whereby you are likely to save hundreds of pounds in interest charges each year,” he says.

“For example, if you owed £2,000 on a card with an APR of 17%, it would cost £340 in interest each year. If you had £2,000 in savings paying 1.25%, you’d only earn £25 in interest.”

5. Don’t buy a car on loan with a flexible interest rate

First thing’s first, if you’ve already purchased a car on finance, check your policy. Most car finance agreements in the UK are (thankfully) set with a fixed interest rate for the life of the contract, according to the website The Car Expert

This means that if the APR (annual percentage rate) when you signed up was 5.9%, it will remain at 5.9% for the whole agreement. Your monthly repayments won’t change, regardless of the Bank of England’s announcement.

If you’re shopping for a new car, be wary of deals with flexible rates. Also, be aware that if you lease a car – instead of buying it on credit – the lender is likely to pass interest hikes your way.

6. Don’t miss out on better rates for your savings

One silver lining to the 3% base rate is that banks are starting to offer higher interest rates on their savings accounts, says Plum’s CEO and co-founder Victor Trokoudes.

“According to recent BoE stats, UK household savings rose by almost £5bn in September, so many people are in a good position to be taking advantage of the best rates on offer,” he says.

“With a recession on the horizon, it is a good idea to be making sure your savings are earning as much as possible, to help keep you financially resilient whatever lies ahead.”

7. But don’t give up on your investments, either

Yes, it’s worth shopping around for a better savings account, but Zoe Stabler, a senior investment writer at personal finance comparison website, advises against any knee-jerk reactions – especially if you’ve got an investment portfolio that’s working for you.

“The latest interest rate change might make people tempted to switch from investments to savings accounts, but it’s worth looking at the bigger picture,” she says.

“Savings accounts might suddenly offer rates significantly higher than we’ve seen in recent years, sometimes in our entire adult lives, but they’re still not high enough to match or exceed inflation. It’s still worth investing in stocks and shares if your risk profile suits it.”

Francesca Henry from The Money Fox echoes this, saying: “Don’t start withdrawing money from your investments if you are panicking about the market crashing. If you are investing for the long-term then you will have to ride out the highs and the lows.”