Interest rates Flashcards
When you borrow money, you usually have to pay it back with…
Interest.
Paying back with interest means?
You pay back more than you borrowed.
If you save money…
You earn interest - amount of money in your savings account will increase over time.
What does the amount of interest you pay or earn depend on?
The interest rate.
The higher the interest rate…
The more you pay or earn.
What happens when Interest rates are low?
It’s cheaper to borrow money. But you get less interest when you save money at the bank.
What do firms and consumers do when rates are low?
Borrow more and save less.
What happens when Interest rates are high?
Borrowing money becomes more expensive, but savers get better returns on their investments.
What do firms and consumers do when rates are high?
Likely to be trying to save more, in order to take advantage of higher returns.
