Base rate definition

What is the base rate?

The base rate is the interest rate that’s set by a country’s central bank. It’s also known as the bank rate or the base interest rate. The base rate is often used by commercial banks to determine the interest rates they offer on their savings accounts and loans - including mortgages.

What is the Bank of England base rate?

The Bank of England is the UK’s central bank, and it determines the base rate for the UK. The Bank of England has a monetary policy committee (MPC) which meets eight times a year to decide on any changes to the UK’s monetary policy – including the base rate.

This group of people can decide to put the base rate up or down depending on current economic conditions. For example, if inflation is high the MPC has in the past decided to raise the base rate to encourage saving and discourage spending in an effort to bring inflation down.

Learn about how inflation affects interest rates

How can changes to the base rate affect you?

Changes to the base rate can affect you if you’ve got money in a savings account, or if you are applying for or have a mortgage. That’s because commercial banks often use a central bank’s base rate to determine the interest that they offer to the customers for their savings accounts and mortgages.

A higher base rate is good news for savings account holders because they can earn a better return on their money. But, a higher base rate can be bad news for those without a fixed-rate mortgage, because their repayments might increase.