What a base rate cut could mean for your finances

Following the latest Bank of England base rate cut on 8th May of 0.25%, to 4.25%, many households and investors are wondering what the implications might be for their financial plans. And if the forecasts are to be believed, it won’t be the last one. While that might sound like good news for borrowers, it’s not such a rosy picture for savers. And for those with investments, pensions or mortgages, now could be the right time to give your finances a once-over. 

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Good news for borrowers – not so great for savers 

For savers, the prospect of a lower base rate is generally unwelcome. Interest paid on savings accounts typically tracks the base rate to some extent, and we had already seen a downturn in fixed-term savings rates, in anticipation of the base rate decision. Variable rates are likely to follow suit now the rate cut has happened.  

Providers often anticipate base rate cuts and adjust their offerings accordingly, meaning the window to secure attractive rates may be closing. So if you’ve been toying with the idea of locking in a fixed rate, you may want to get on with it. There’s a decent chance that what’s on offer now won’t be around much longer, and holding off could mean settling for less.   

Take a look at our Best Buy tables to see the best rates available.

Investors: time to get your money working again? 

Over the last couple of years, rising interest rates made cash a pretty comfortable place to sit. But if those rates are now heading south, we expect more people to look again at the stock market, to stay ahead of inflation and keep their money working harder.  

From a broader investment standpoint, lower interest rates can be a boost to asset prices as borrowing becomes cheaper, for individuals and businesses, and the returns from cash become less attractive. That often supports growth in certain sectors and can offer opportunities for investors who know where to look.

For those who don’t know where to look, the investment experts at TPO can help. We take this kind of market insight into account when reviewing and managing client portfolios - helping investors stay aligned with their goals, even as economic conditions shift.

That said, keeping enough cash on hand for short-term needs is still vital - maintaining a sensible cash buffer remains important to provide flexibility and peace of mind during periods of market volatility. It means you’re not forced to sell investments during market dips.

Thinking about an annuity? Timing matters 

If you’re nearing retirement and considering buying an annuity, the base rate change is something to pay close attention to. Falling interest rates tend to drag annuity rates down with them, meaning the income you can secure for life may end up being lower than it was just a few weeks ago. And with annuities enjoying something of a resurgence recently, it’s not just about whether you buy one – it’s also about when you do and how you go about it. The key here is not to take the first offer from your pension provider. There are often better deals available elsewhere, particularly for those with any health issues - even minor ones can make a difference.  

Deciding whether an annuity is the right option is not always straightforward, and making well-informed choices in retirement is essential. This is an area where professional advice can be invaluable. 

Mortgage holders could benefit - but make the most of it 

Mortgage holders may view a base rate cut more favourably. Those on variable rate deals or trackers will likely see their monthly payments fall, while those due to remortgage could benefit from lower rates than might otherwise have been available.  

But don’t just enjoy the lower cost and leave it at that. If your mortgage is more affordable, why not consider overpaying a little each month (if your lender allows) or using the extra cash to top up your pension or ISA? It’s all about making your money stretch further while the opportunity’s there, to make your future financial position healthier.  

For many, the value of impartial, expert advice cannot be overstated. Whether you are planning for retirement, managing investments or looking to optimise your savings, a tailored financial plan can offer both clarity and confidence.  

If you’re unsure how the recent base rate decision might affect your financial plans, or if you simply want to make sure you’re on the right path, now may be the ideal time to get in touch. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.

The Financial Conduct Authority (FCA) does not regulate cash flow planning or tax.