Interest rates rise to 4%: Savers could win, but borrowers face higher costs

The Bank of England has increased interest rates for the first time in more than three years. While this is probably good news if you’re a saver, millions of households could see their borrowing costs increase.

Here’s what you need to check

The Bank of England has raised its base rate from 3.75% to 4%, in an attempt to bring inflation under control.

It’s a decision that creates a clear divide between potential winners and losers.

If you have savings, you could benefit from higher interest rates. But if you have a mortgage, credit card or overdraft debt, you could find yourself paying more to borrow money.

Here’s what the change means for your finances:

Savers: An opportunity to earn more interest

When the Bank of England increases its base rate, banks and building societies may respond by increasing the interest they pay on savings accounts.

That’s welcome news if you have money sitting in a savings account, particularly if you’ve been disappointed by falling rates over recent months.

However, there’s a catch. Savings providers don’t have to pass on the full increase, and they don’t necessarily do so straight away.

Some accounts may see an improvement within days, while others could take weeks or fail to increase their rates at all.

This means you shouldn’t assume your existing savings account is suddenly paying more interest. You may find a better return by switching to a more competitive provider.

Mortgage borrowers: Higher monthly repayments

If you have a tracker mortgage linked to the Bank of England base rate, your interest rate is likely to increase by the same 0.25 percentage points, usually with little delay.

Around 1.4 million homeowners with tracker or variable-rate mortgages could be affected.

Those on standard variable rate (SVR) mortgages may also face higher repayments, although lenders decide whether and when to pass on the increase.

For someone with a £250,000 repayment mortgage over 25 years, a 0.25 percentage point increase could add around £37 to monthly repayments.

If you’re on a fixed-rate mortgage, you won’t see an immediate change to your existing monthly payments. However, the cost of new fixed-rate deals can be influenced by expectations about future interest rates, so anyone approaching the end of their current deal should keep an eye on the market.

Credit cards and overdrafts: Borrowing could become more expensive

The base rate increase could also feed through into the cost of other borrowing.

Credit card and overdraft rates aren’t automatically linked to the Bank of England base rate, so you shouldn’t expect every provider to increase its charges immediately.

However, if you’re already carrying a balance, it’s worth checking the interest rate you’re paying and whether a cheaper alternative is available.

What you can do

If you’re a saver:

Check your existing interest rate. Has your bank increased it following the Bank of England announcement? Don’t assume it has.

Compare easy-access accounts. If you want to keep your money available, check whether another provider is offering a better return without restrictive withdrawal conditions.

Consider a fixed-rate account. If you don’t need access to your money for a while, you could lock in a competitive rate. Just remember that you won’t usually be able to withdraw your money freely during the fixed term.

Take a look at Cash ISAs. If you have savings outside an ISA, consider whether moving some money into a tax-free account could be beneficial, particularly if you’re approaching your Personal Savings Allowance.

If you’re a borrower:

Check your mortgage type. Find out whether you’re on a tracker, standard variable rate or fixed-rate deal.

Look at your monthly repayments. If you’re on a variable-rate mortgage, ask your lender when the increase will take effect and how much extra you’ll pay.

If you’re on a fixed rate deal, check when it’s due to end. If you’re due to remortgage soon, start reviewing your options sooner rather than waiting until the last minute. It can be possible to secure a new deal up to 6 months before you’re due to remortgage which then gives you the flexibility to either hold on to the rate you get offered (which is beneficial if the Bank of England continues to raise rates) or swap it for a lower one if rates subsequently go down before you officially start the new mortgage.

Review credit card and overdraft costs. If you’re paying high interest on existing borrowing, look at whether you could reduce the cost by switching or repaying some of the balance.

Could interest rates rise again?

The Bank of England’s decision reflects concerns that inflation could remain higher than expected, partly because of rising energy prices.

UK inflation reached 3.5% in the 12 months to September 2026, still well above the Bank’s 2% target.

The Bank has warned that inflation could rise further, potentially reaching around 5% by the middle of 2027.

However, further interest rate increases aren’t guaranteed. The Bank will assess economic conditions at each meeting before deciding whether rates need to rise again.

Its next scheduled interest rate decision is on 17 December 2026.

Whether you’re looking to make more from your savings or find a better home for your Cash ISA, take a look at our guides to the Best Cash ISAs paying the top rates of interest, and Best Ordinary Savings Accounts to compare the top-paying rates on non-ISA accounts.