Mortgages, personal loans and savings have one thing in common – an interest rate – making it something which affects almost everyone. But who has an ‘interest in interest’?
The interest rates we earn on our savings and pay on our debts are hugely influenced by the Bank of England base rate. This is one of the key tools the Bank uses to influence the UK economy.
The base rate has never been lower, reaching 0.25% in August 2016. Before that, it sat at 0.5% for over seven years, and we have to go back to July 2007 for the last time there was an increase.
That means someone who is a fresh university graduate would have just started secondary school when the base rate last rose. That was when the final Harry Potter book was published, Steve Jobs announced the first iPhone and Rihanna released Umbrella!
Banks, building societies, credit card companies and other financial firms all take their lead from the base rate. That’s why mortgages and other loans are on offer at historically low rates, and why the returns on savings accounts are so disappointing. It’s also why many people tend to confuse the base rate, set by the Bank of England, with the interest rates set by high street banks, for example. To set aside confusion, any mention of “interest rates” in this article refers to mortgage, savings and other interest rates in general, excluding the base rate.
So how well do British savers and borrowers understand the impact of interest rates on their financial well-being?
To find out, we conducted a survey of the British public to see how financially savvy people are when it comes to interest rates and the base rate. The results were surprising! Nearly three quarters of Brits (70%) either got the current base rate wrong or admitted that they didn’t know what it was.
Not only that, but only one in 100 people knew exactly how an interest rate increase from their bank would affect their monthly mortgage payments.
When asked who in their household is the most knowledgeable about interest rates as a whole, 43% claimed “I am”. Yet of those financial gurus, the majority (63%) got the current base rate wrong or didn’t know!
To make the rest of our findings more approachable, we’ve split them into three sections – age, gender and region.