The word “Interest Rates” have being thrown around a LOT! lately, dont you think?
Given its popularity, its mesmerising how little people understand what it means, and how it impacts their lives!
So lets unveil that curtain once and for all!
Understanding Interest Rates
Interest rates are the cost of borrowing money or the return on investment for lending or depositing money. They are essential in the world of finance, impacting loans, savings accounts, credit cards, and mortgages.
When you borrow money, interest rates determine how much extra you need to repay, while as a saver, they influence the growth of your investments.
Okay.. so?
TLDR;
Higher interest rates mean BANKS have to PAY MORE to borrow from the FED. So they charge their customers MORE (thats you)
So LESS people can borrow to buy houses/start business etc..
The supply of money SHRINKS.
Money itself becomes MORE expensive!
Debt becomes MORE pain.
So when you hear the Fed, or whoever, raises interest rates.
Hear they are trying to reduce money supply .(cough cough fight high inflation). So less people borrow, and more people are forced to spend their reserves.
Thats it folks! Short and sweet.
If you want to learn more then follow me!
In the meantime, here are my favourite 3 books on how I learned money!
The Psychology of Money: The BEST! book I’ve read on how to manage your money
The Almighty Dollar: Delving into the captivating power of money and its impact on our daily lives, dreams, and desires.
Freakonomics: A mind-bending exploration that challenges traditional thinking, revealing the quirky and unexpected side of economics and human behavior.
