Interest rates can be a source of stress for many people This is especially true if they have savings and want to make money from the interest that they get on them as well as if they have loans and need to pay interest on them. It is therefore in many peoples minds that a change, whether that be a rise or fall can have an impact on them. Wondering about how they might change in the future could also be a concern.
Rates can be quite difficult and the longer the term you are trying to predict them for, the more difficult it is. This is because it is very difficult to look into the future and imagine what might happen. At the moment the main criteria for setting interest rates is inflation. The Bank of England will look at the previous months inflation figure and see how close it is to their target. At the moment that target is 2%. However, inflation does fluctuate slightly from month to month and there are seasonal variations as well. This means they tend to look at the trend over a few months and think about how that might change in the future in order to make their decision. They will also consider how well people are managing as if there is a lot of household debt and people are struggling to pay they may delay putting up rates to help them out.
Predicting what rates might do in the short term is much easier. You can look at previous trends and also think about what the rates are and if they are likely to rise or fall. Odds are that if they are low and have been for a long time then they are more likely to rise and vice versa. However, recently we have had record low rates and they have remained low for a very long time, so the trend is not always followed and therefore it is not always easy to predict.
Economists may try to predict what might happen. Although they are not always right it can be a guide for you. If you look at what a selection of them are saying it could give you an idea of what might happen. However, there is no guarantee that there will not be a big change in the world, such as a stock market crash or the closing of a bank that could have a huge impact economically on lots of countries and cause unpredictable behaviour.
Protecting against rate changes
It can therefore be much better to try to protect yourself from any potential changes in rates rather than trying to predict what might happen. For example, if you have savings, then put them in the highest interest account that you can and keep checking the interest. If there are better interest accounts then move your money. If you keep doing this then you will get the best return that you can. If you move the money to an account where you tie the money up for a few years or have to give notice to withdraw it you might get an even better return. Another option is to use a fixed rate product such as a bond. Again, you will be tied in but you could end up getting a much bigger return this way. Obviously, you need to decide whether you are happy to tie your money up like this or whether you would rather have instant access to it. It will depend on whether you rely on being able to spend it or if you are just keeping it for the future.
If you have loans you need to check rates in a similar way. Take a look at similar loans to yours with different lenders and see whether it would be worth switching to a cheaper one. You may also benefit by changing to a different type of loan. Try to repay the loan as quickly as possible too. With some loans you can control how much you repay and with others you have a strict repayment schedule. With these you may still be able to repay more than necessary in order to get it repaid more quickly. You will need to check that there is no fee for doing this though. There may be just a small fee which is affordable or you may find that there is a high amount of money which will be so much that it will make repaying the loan early too expensive. It will all depend on the specific loan, so it is worth finding out. If you have any savings then using those to repay the loan will always be worth it as the interest you get paid on savings is generally less than what you are charged on a loan. However, this is not always the case, so check first.