interest rates

• Interest rates


  The reward for lending money and the cost of borrowing it
• Interest rates affect


  The amount of interest we receive on our savings or the amount of interest we are charged on a loan
• Money is often borrowed in business to not only survive but to also finance projects and activities such as expansion and refurbishments
• When businesses borrow money

  They are often charged interest which means they will pay more back than they initially borrowed
• Bank of England Base Rate


  The rate set by the Monetary Policy Committee with the aim of meeting the government target of keeping inflation low and stable
• Bank of England Base Rate


  Influences the interest rates that banks charge people and businesses to borrow money or pay on their savings
• Banks need to


  Pay less on saving than they make on lending
• Rise in interest rate


  Typically signals that the economy is robust
• Businesses with company credit cards and existing loans


  Can have higher interest payments as the cost of borrowing increases, they may also have less disposable income, and bigger overheads
• Customers will typically


  Spend less money when interest rates are increased as they save more and borrow less
• Negative impact on profitability of businesses


  Especially for those which sell luxury non-essentials products
• Calculating interest rate on a bank loan


  1. Step 1: Subtract the amount borrowed from the total amount to be repaid

  2. Step 2: Divide the answer from step 1 by the amount borrowed

  3. Step 3: Multiply the answer from step 2 by 100
• The interest rate charged on the bank loan is 8%
• Bank of England Base Rate


  The interest rate set by the Bank of England for commercial banks in the UK
• Commercial banks


  Banks that offer services to individuals and businesses
• Bank of England (BOE)


  The central bank of the UK responsible for managing the country's monetary policy
• How the BOE uses the base rate


  The BOE raises or lowers the base rate to encourage or discourage borrowing and spending, which helps keep inflation in check