Interest Rates

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4 Terms

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Interest rates

The cost of borrowing money, expressed as a percentage, or the payment received for lending money; essentially determined how much extra you’ll pay on a loan or how much you’ll earn on a savings account

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What are the impacts of spending on interest rates?

  • Higher interest rates: makes borrowing more expensive, leading to decreased spending on large purchases like houses and cars

  • Lower interest rates: makes borrowing cheaper, potentially leading to increased spending and investment

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What are the impacts of saving on interest rates?

  • Higher interest rates: make savings accounts more attractive, encouraging people to save more

  • Lower interest rates: reduce the returns on savings, potentially leading to less saving and more investment in other assets

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Personal finance implications; interest rates

  • Borrowing: higher rates mean higher loan payments (mortgages, credit cards), while lower rates can lead to lower interest costs

  • Saving: higher rates increase the return on savings, while lower rates may reduce the attractiveness of traditional savings vehicles

  • Investment: interest rate changes can affect investment decisions, with some investors shifting to different asset classes based on market conditions