If you pay attention to financial news, you’ve probably heard a lot about interest rates going up and down or reading op-eds about when the time is right to raise them. Interest rates are critical to the economy, personal finances and investments.
An interest rate is the price you pay or earn for borrowing money, lending it out or depositing funds in a savings account or other investment accounts. It is typically expressed as a percentage of the principal sum and calculated over a period of time, usually a year. It can also be expressed as a compound annual rate when it compounds more than once.
When interest rates are low, it is less expensive for individuals and businesses to borrow money and expand operations. This can help boost the economy and create more jobs. But when they rise, it costs more to borrow and consumers and businesses tend to spend less, which can slow economic growth and control inflation.
When interest rates are high, it is a good idea to pay down debt like credit card and mortgage payments and invest in income-producing assets like GICs, savings accounts or margin accounts. It’s also a good idea to shop around for the best rates when applying for loans or investing, as different lenders have their own rates.
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