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  1. ITV Report

What does an interest rate rise mean for savers?

The Bank of England is expected to raise interest rates by 0.25% on Thursday, the first time they have gone up in more than a decade.

While the increase is bad news for those with mortgages and other money borrowed, it is welcome news for savers.

If the interest rate on a savings account rises by 0.25%, then for every £100 the saver has in that account, they will earn an 25p per year.

With the economy in a sluggish state and households feeling their finances squeezed due to rising costs, the Bank hopes that a small increase in interest rates could curb inflation and strengthen sterling.

If interest rates do rise on Thursday, it will be the first time they have done since 2007.

Ten years ago, interest rate for the average easy access savings account was 4.05%, so for every £1,000 someone had in the bank, they would earn £40.50 in interest per year.

Fast forward 10 years and the average interest rate stands at 0.39%, so for the same amount of money, a saver would earn just £3.90 per year.

Savers earnt much more in interest in 2007 than they are in 2017. Credit: ITV News

Combined with inflation at a five-year high of 3%, if a saver is earning less than 3% interest on their savings, then they are actually losing money in real terms.

"It's quite likely most savers are on less than 1% interest and it's constantly being eroded by inflation," Rachel Springall, a finance expert explained.

She continued that if inflation rates continue to rise and interest rates do not, then "spending power is just going to go even worse".

Savers are losing money in real terms due to low interest rates and higher rates of inflation. Credit: ITV News

The rise in interest rates will be welcome news to savers such as Rod Padley.

The Sheffield man has £10,000 in a Santander Savings Account, and says in the last year he has earned roughly £500 in interest.

Rod Padley says people he works with cannot afford to retire. Credit: ITV News

Mr Padley believes he is in a better position than many people he knows: "Colleagues I work with carry on working because they can't afford to retire, you're trapped in a cycle of low interest rates, house prices are coming down in Sheffield, most people are really, really struggling to save enough money to retire."

While Sue Hickman, a saver with £5,000 in a Lloyds account, believes that since 2007 she has earned £900 in interest, but says she is just waiting "for things to change in the economy", to benefit her savings more.

"You just start thinking, what was the best place to put the money... you just have to wait for things to change in the economy."

Sue Hickman says she is waiting for the economy to 'pick up'. Credit: ITV News

While it is not definite that interest rates will rise, many bankers believe they will.

Chris Rhodes, Executive Director of Nationwide said his building society confirmed on Monday that they expect interest rates to go up on Thursday.

If interest rates do not rise, then spending power will decrease, financial expert Rachel Springall said. Credit: ITV News