Interest rates

• Interest rates

  Determine the cost of borrowing or saving
• A fall in interest rates

  Means a decrease in the cost of borrowing for businesses
• A rise in interest rates

  Leads to an increase in the cost of borrowing
• Interest rate on savings


  The amount of money paid into a savings account by the bank
• A fall in interest rate

  Means a decrease in the return on savings
• Changes in interest rates

  Will affect a business's costs if it has a loan or a mortgage
• High interest rates

  Mean most consumers have less money to spend
• People with existing borrowing have to pay more money back in interest

  So they have less disposable income and market demand goes down
• People might decide to save more

  To take advantage of the interest earned on their savings, reducing demand
• Low interest rates

  Mean consumers have more disposable income and there is less reward for saving, so demand goes up
• The effect of interest rates on demand

  Depends on the product