Interest is what you pay to borrow money, or what you earn for saving it. Bank Rate, currently 3.75%, is the reference point for most UK rates.
Last reviewed: 1 July 2026
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MONEY GUIDES |
Interest is the cost of borrowing money, or the reward for saving it, expressed as a percentage of the amount involved. In the UK, most lending and savings rates are set with reference to the Bank of England's Bank Rate, currently 3.75%.
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KEY FACTS
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How lending rates and savings rates relate to each other
If someone borrows £100 at a 5% annual lending rate, they owe £105 a year later. If someone saves £100 in an account paying 5% a year, they have £105 a year later. The mechanics are identical; the direction of who pays whom is reversed.
How different products relate to Bank Rate
| Rate Type | Who Pays Whom | Typical Link to Bank Rate |
|---|---|---|
| Tracker mortgage | Borrower pays lender | Direct, contractual |
| Fixed mortgage | Borrower pays lender | Indirect, via swap rates |
| Easy access savings | Bank pays saver | Tends to track over time |
| Fixed-rate savings bond | Bank pays saver | Locked at opening, unaffected after |
Why interest rates change the wider economy, not just individual accounts
When rates rise, borrowing becomes more expensive and saving becomes more rewarding, which tends to reduce how much people and businesses spend. When rates fall, the reverse tends to happen. The Bank of England uses this mechanism deliberately, adjusting Bank Rate to try to keep inflation close to its 2% target.
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Worked Example: Same rate, opposite effect A person with a £10,000 personal loan at 8% pays roughly £800 a year in interest. A person with £10,000 in a savings account at 4% earns roughly £400 a year. Both figures move if the underlying rate environment shifts, but in opposite directions for the borrower and the saver. |
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This article is general information, not financial or legal advice. Rules and limits can change: always check the current position with the regulator or scheme concerned before relying on any figure here. |
Why do fixed mortgage rates sometimes move before a Bank Rate decision?
Fixed mortgage pricing is driven by swap rates, which reflect market expectations of future Bank Rate movements. Lenders can reprice fixed deals in anticipation of a decision, before the Monetary Policy Committee has actually met.
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Related Guides |
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