Base Rate

This is the a rate published by banks such as Barclays, NatWest and Lloyds TSB which is used to price loans, overdrafts and other forms of credit.

For example, a large blue chip company might be charged just 0.5% over base rate for credit facilities, a medium size company might pay between 1 and 3% over base rate, and a consumer might pay 7% over base rate (or even more).

The banks each set their own base rate, though in practice they are almost always in line with each other. Base rate is not technically linked to the Bank of England Minimum Lending Rate (which is the rate at which the Bank of England lends to the banks, or at which the banks tend to lend to each other), but movement in Bank of England Minimum Lending Rate invariably results in movement in bank base rates.

Savings rates are often below base rates, and borrowing rates are always above base rates. The difference – the ‘margin’- is where banks make their profits.

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