One of the most vital skills in life is understanding the power of money and this includes knowing how interest rates work. When you borrow money from a bank they charge you a certain percentage that must be paid in conjunction with the amount you've loaned. The same principle applies when you save or invest money. In this article we have summarized this whole concept to only include the most important information.
What are interest rates?
In simple terms it refers to the price of money. They are determined with the Reserve Bank based on the countries economic activity. The more people want to borrow money, the higher the price. Let's take example of the pandemic. It has created what is called a recession. Less people are using such services which means that the prices for interest rates have been kept very low.
This is the simplest way to grow your money and keep up with inflation. Most banks prefer to offer lower interest rates for savings accounts compared to when borrowing money. This means that you won't get as much rewards when you decide to save your money. It is only through investing that your money can be grown at an exponentially rate. Do take note that all investments are subjected to varying degrees of risk.
— Lower interest rates are offered for savings accounts.
— The higher the reward, the higher the risk.
It's always recommended that you do your own research to come up with all the options you might have before committing. Banks are in the business of making money. As much as they are going to give you convincing reasons on why you should take out a loan with them, they are always chasing for the bag.
— Taking out a home loan may be the most responsible financial decision that you would take, but do take note of the interest rates.
— Familiarize yourself with the concept of assets and liabilities. If you want to buy a liability it must be financed using one of your assets otherwise it's a bad financial decision.
We hope we have shared enough light into the topic of interest rates. Let's keep the conversation going on the comments section below, we'd love to hear from you. For more financial advice, make sure you follow us and never miss out on our articles published daily.
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