Hello and welcome to today’s forum. Last week, we discussed ‘monetary policy’ and we explained that it influences interest rates, thus impacting your everyday financial decision making, whether you know it or not. If you want a sneak-peak on that, click the blue tab for some insight.
Today, we discuss ‘Interest Rates’.
Interest rates are like the heartbeat of the financial world. They are the cost of borrowing money and the reward for saving or lending money. When you borrow money, you pay interest to the lender for using their money. A prominent example is when you save money in a bank, the bank pays you interest or profit as a reward for keeping your money with them.
When interest rates go up, borrowing becomes more expensive, which means higher costs for things like mortgages and other type of loans. On the other hand, when interest rates go down, borrowing becomes cheaper, providing opportunities to save on interest costs. The institution responsible for setting interest rates may vary from country to country, but it usually is the central bank of a country. In the United States, for example, the Federal Reserve has the power to influence this while in the UK, the monetary policy committee, a part of the Bank of England does the same. By adjusting interest rates, the central bank aims to influence your borrowing, your spending, and your overall economic activity. Do you want to control or to be controlled?
Understanding the interest rates empowers you to take control of your financial decisions. When considering borrowing or saving, knowing the current interest rates in your economy helps you choose the most favorable option. For example, if interest rates are high, it might be better to delay borrowing and focus on saving to earn higher returns. Conversely, when interest rates are low, it could be a good time to take advantage of other investment opportunities.
In conclusion, interest rates are a fundamental aspect of the financial landscape that affects your borrowing costs, savings returns, and investment decisions. It allows you to navigate borrowing and saving opportunities. As you keep an eye on the central bank's decisions, you can be better prepared to ride the waves of interest rates and achieve financial success. The information on the interest rate of your country can be found on the website of the central bank or other monetary authority that influence the interest rate.
Do you know the interest rate in your country?
‘‘He does not lend money to get too much interest or profit. He keeps his hand from doing wrong. He judges fairly between one person and another’’.
Ezekiel 18:8 (NCV)
Very well and simple.
Interest rates also is a monetary policy instrument used to control inflation and volume of money in circulation