Over half of Brits ‘don’t even know what interest rate means’

A NEW study has found that over half of Brits (55%) don’t what the term “interest rate” means.

The news comes amid speculation of a November base rate rise predicted on Thursday.

With the Bank of England hinting that there may be a base rate rise as soon as the start of November, new research from MoneySuperMarket can reveal that 70% of the nation can’t accurately pinpoint the current base rate.

Despite the impact a rise will have on everyday finances – including savings and mortgages – just one in 100 Brits understands how a hike of the current 0.25% rate, the first in a decade, would affect their mortgage repayments.

Almost a quarter (23%) of respondents said they didn’t know how it would affect their pay packet, and 41% believe their pay would not be affected at all.

What’s more, when asked what the term “interest rate” meant, over half (55%) admit to not knowing at all, while nearly one in 10 (8%) believe it is the value of how much interest their bank has in them.

Looking specifically at north of the border, when asked who in your household is the most knowledgeable about interest rates, 37% of Scots said “I am”.

Yet of those who claim to be the most knowledgeable, over half got the current base rate wrong.

And 6% of Scots think that “interest rate” means “a value that shows how much interest the bank has in me”.

Over one fifth of Scots admitted to not knowing how a change in the base rate would affect their monthly wages.

The research also uncovers a knowledge gap between generations, with a huge 81% of 18-24 year olds not understanding the term ‘interest rate’, compared to just over half (57%) of 45-54 year olds.

What’s more, 40% of men were able to identify the current base rate compared to just a quarter of women (25%). Nearly a third (32%) of women admitted their partner is more knowledgeable on the topic, compared to just 7% of men.

When asked who in their household was the most knowledgeable about rates as a whole, 43% claimed it was themselves – yet the majority of people who answered this way (63%) actually got the current rate wrong, or didn’t know it.

There was also a clear gap among different areas of the UK. People in the South West were the most knowledgeable, with 45% of respondents correctly stating the base rate, followed by 35% in the South East and Northern Ireland. However, only 14% of those in Wales were able to provide the right figure, the lowest of all the regions surveyed.

Sally Francis, money expert at MoneySuperMarket, said: “There’s been very little movement in the Bank of England base rate since 2009 so it’s understandable that most Brits aren’t sure how a shift could affect their finances. The anticipated rise of 0.25% might seem small but it could pave the way for a string of increases that could impact some of the biggest bills. We’re encouraging people to take control of their finances today and learn how any future changes could affect their money.

“A rise in the base rate, coupled with the end of the Funding for Lending scheme – a Bank of England incentive for financial institutions to borrow cheaply from it – early next year is good news for savers, but if you’re on a tracker mortgage your monthly instalments will rise as soon as any base rate increase is announced.

“If you’re on a capped or discount mortgage, you could also see increases so acting immediately could save you thousands in the long run, especially if base rate continues to rise. Switching to a fixed rate mortgage ensures that your monthly repayments stay the same for the duration of your fixed period, providing certainty and stability in your finances.”

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