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What Are Interest Rates and How Do They Affect Your Finances?
Do you know your inflation from your interest rates? In this article, we consider what interest rates are, how they impact individuals and the wider economy, and also consider times when they may have some advantage.
What are interest rates?
Interest rates are one of the most important concepts in finance and economics. Simply put, an interest rate is a cost of borrowing money. When someone borrows money, they typically have to pay back more than they borrowed, and the interest rate is the percentage of the loan amount they have to pay back in addition to the principal.
Central banks and other financial institutions set interest rates, which vary widely depending on several factors. One of the most important factors is inflation. When inflation is high, central banks may raise interest rates to curb inflation by making borrowing more expensive. On the other hand, when inflation is low, central banks may lower interest rates to encourage borrowing and stimulate economic growth.
Supply and demand in the credit markets can also influence interest rates. When there is a high demand for credit, interest rates may rise because lenders can charge more for their services. Conversely, when there is a low demand for credit, interest rates may fall because…
