What is Bank Rate?

What are interest rates?

Interest is the fee for borrowing money and what banks give you for saving with them. Interest rates are shown as a percentage of the amount borrowed or saved over a year. For example, if you put £100 in a savings account with a 1% interest rate, you’d have £101 after a year.

What is Bank Rate?

The Bank Rate is a key interest rate in the UK, also known as the 'Bank of England base rate' or 'the interest rate'. The Monetary Policy Committee (MPC) sets the Bank Rate as part of the actions taken to keep inflation low and stable. This rate affects the interest rates commercial banks receive from us and impacts the rates they charge people for borrowing or saving money.

How changes in Bank Rate affect the economy

When the Bank Rate changes, it affects how much people spend. This spending influences the cost of things. By changing the Bank Rate, we can impact prices and inflation. The goal set by the Government is to maintain a 2% inflation rate.

How Bank Rate affects your interest rates?

If the Bank Rate changes, banks usually adjust their interest rates for saving and borrowing. However, other factors can also impact these rates, and they might not change by the same percentage as the Bank Rate. Banks aim to earn more from lending than they pay on savings, but they can't pay less than 0% on savings, or people won't deposit money. When the Bank Rate nears 0%, banks are less likely to lower saving and borrowing rates by the same amount. Similarly, when the Bank Rate rises from near 0%, the increase in saving and borrowing rates is likely to be less significant.