What rising interest rates might mean for you

Published by Mark King on 06 August 2015.
Last updated on 06 August 2015

What rising interest rates might mean for you

There weren't too many surprises when the Bank of England chose to maintain the base rate of interest at 0.5% for the 78th month running on 6 August 2015, but there were pointers that a rise in rates is now firmly on the horizon.
Maike Currie, associate investment director at Fidelity Worldwide Investment, explains her view of what rising rates might mean for you.

What does it mean for families?
"As rates rise, they will impact families differently, depending on the size of their borrowings and the terms of their mortgage. Younger households - those in their thirties and forties - have done relatively well from the prolonged period of lower interest rates. But this has also left many overburdened with high levels of mortgage debt.
"In contrast, the older generation of homeowners is in a much better position, having benefited from a steady rise in house prices."

What does it mean for retirees?
"One of the casualties of lower interest rates has been safer streams of interest income. Retirees relying on their savings to supplement their pension income have felt the impact of low interest rates hardest. Many, no doubt, will greet an interest rate rise with relief.
"Other good news for retirees is that annuity rates which have been at historical lows could improve with a rise interest rates, which means those planning to retire soon could secure a higher income.
"Less positive is the possibility that retirees could see a fall in the value of their pension funds. This is because when investors near retirement age money is often automatically moved out of the market and into bonds, as a way of de-risking pension savings. Bond prices tend to fall when interest rates rise, in order to increase the yield and attract buyers."

What does it mean for investors?
"Investors could very likely see rates remaining at 0.5% until March next year, which will mark the seven-year anniversary of interest rates remaining at this 'emergency level'. When rates do eventually rise, expect a long, slow slog to 'normality'. Despite being dubbed the 'unreliable boyfriend' for his mixed messages on interest rates, Bank of England governor Mark Carney has made it very clear that a rate rise will be 'gradual and limited'."

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