Interest Rate

An interest rate is the price of money. When you deposit at a bank, the deposit rate is what the bank pays you; when you borrow, the loan rate is what you pay the bank. Money, like anything else, comes with a rental cost.

The reference point is the policy rate set by the central bank. Move that one number and deposits, loans, bonds, equities and property all react. Rates go up to cool inflation by tying money down, and come down to loosen it when the economy slows.

Rising rates increase the burden on anyone carrying debt and push companies to cut investment, which weighs on share prices. Savers and bondholders benefit instead. Falling rates run the same story in reverse.

So when taking a loan, look past the headline number and check whether it is fixed or floating. A floating rate that looks cheap today can climb sharply within a few years, and that difference can change your monthly payment substantially.