What is an interest rate?

An interest rate is a fee charged by a lender to a borrower expressed as a percentage of the amount borrowed.

While a lender can offer a loan at any rate they like, they are generally set as a margin above the Bank of England's base-rate, which is the rate at which the Central Bank lends money to other banks.

The Bank of England makes rate decisions every 6 weeks and raising the rate acts as a dampener on the economy as money becomes more expensive to borrow.

The margin above the base-rate charged by the lending bank is the fee that bank wants for the risk of lending the money onwards from the Bank of England to the borrower.