The Bank of England has decided to keep the base rate at 5% this month.

This latest decision was expected and gives the bank time to assess the effect of the previous two rate increases. The most recent rise to 5% in November brought interest rates to their highest level for 5 years.

The main reason for interest rate rises is to control inflation and some people expect a further increase to 5.25% in the New Year.

Many homebuyers now choose fixed-rate mortgages so have not yet been affected by changes in the interest rate. However, those on variable rate deals or whose fixed rate term is coming to an end will be facing increases in payments. According to the Halifax a 0.25% rise in the cost of borrowing adds nearly £20 to the monthly payment on a £100,000 variable rate mortgage.

Interest rates on credit cards are often high but are not immediately affected by the bank rate changes, particularly as the credit card market is competitive.

On the whole interest rate rises are welcome to savers. However, rates and therefore returns are still low compared to the last 20 years. Savers are often advised to consider changing accounts to make the most of rate rises.

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