Before you start investing, it is best that you know a thing or two about some of the things that would affect that money that you put out for investing. One of them is called “Interest Rates.” This one affects everything that you do with the money you used for investment. A good example of this is your savings account that has an interest rate assigned by your bank on an annual basis. The amount of money you put in there would increase or would remain as it is depending on the interest rate given by the bank.
For those who think interest rates is just some unnecessary burden in their investing agenda, I would like you guys to think again because this actually helps with regards to the flow of money in the economy. It tracks down the numbers that involves the people who save money and the people who borrows. The difference between the two is that the savers are known as interest that are already paid from them tabling down their expenses until such time that they need it. On the other hand, the borrowers are the one paying for the current interest they are spending in the now.
Now, you must understand that the more savings there are in a given financial institution, the more funds can be loaned from them and this is when the interest rate goes low. Meanwhile, when there are more borrowers than the available money for savings there are, this is when interest rates go high and yes, this is also amongst the reasons why prices hike.
A bank’s loan money depends on the effect of the interest rates that is currently happening in the economy. This shows that the impact to depositors would be direct and them multiplying is also related to it. Consequently, when this happens, inflation also takes place. The solution to inflation is also raising the interest rates.
The interest rate is actually never the same or stagnant. It would always change according to the demand and supply happening in the current market. This is basic economics as well if you would notice.
You must also know that there are different types of market and foundational interest rates in a country’s economy. These are often based on what’s going on with the central bank or the Federal Reserve (an example in the USA). The changes happening in interest rates are mostly also due to the rate that occurs in the federal funds or it could also be because of the discount rate. Either way, when those things are changing, it has the power to actually mold an entire economy.
These are just among the things that you should know as an investor when it comes to interest rates.