What is a...

Base Rate

A Base Rate is published by banks to price loans, overdrafts and other forms of credit.

The Base Rate for each individual bank is not technically linked to the Bank of England Base 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 the BoE Base Rate invariably affects all others.

Banks will regularly adjust the credit products they offer to maximise profit; for example, consumers may be offered a loan at 7% over a bank’s base rate, while a medium size company might pay between 1-3% over and a large, blue chip company might be charged 0.5% over.

Savings rates are often below a bank’s Base Rate and borrowing rates will be above that rate. The difference (the ‘margin') is where banks make their profit.

What influences changes in Base Rate?

A number of external factors contribute towards a change in the base rate, but the rate of inflation is a leading cause.

How does a change to the Base Rate affect me?

If you have a Tracker Mortgage, the amount of interest you pay on your loan will be directly affected in-line with any changes to the Base Rate. That means if the rate increases, the cost will go up, if it decreases, the cost will go down.

If you have a savings account, the amount you earn in interest will be affected similarly by the Base Rate.

One way you can influence the interest you’re likely to be asked to pay is by ensuring that your Credit Rating is in good shape. If your Credit Report shows that you have managed accounts well in the past, it should improve your chances of securing a good rate in the future.

You can see what your Credit Report says about you, in amazing detail with checkmyfile. You’ll see everything being reported by Equifax, Experian and TransUnion. It’s free for 30 days and then £14.99 a month, which you can cancel at any time, online and without fuss.

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