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If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

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If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

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To start saving money as soon as possible and invest some of it in stcoks.

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Provide a real-life example of how this topic is relevant or interesting for you. 

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Provide a real-life example of how this topic is relevant or interesting for you. 

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For one, going to the grocery shop or your favourite fast food restaurant and seeing that your favouraite menu item has gone up in price is really upseting especailly when its something you cannot live without.
The price increase may be a few cents but over time it adds up.

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What did you learn about your topic that surprised you the most?

We learned that there are number of ways the government uses to manage inflation and one that stood out to us was the monetary policy which is using money supply and interest rate to reduce the amount of money going around

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https://www.investopedia.com/insights/forces-behind-interest-rates/

This Website talks about what are interest rates.

- The interest rate is the cost of lending money.

- Borrowers pay interest because they are required to pay for a price having the money to be able to purchase goods and services, rather than not having to wait years.

- Many Businesses borrow money from the bank for further profit. They may borrow money so that they are able to purchase equipment thus helping the companies earn revenue.

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An interest rate is the cost of borrowing money. Or, on the other side of the coin, it is the compensation for the service and risk of lending money. In both cases it keeps the economy moving by encouraging people to borrow, to lend, and to spend. But prevailing interest rates are always changing, and different types of loans offer different interest rates. If you are a lender, a borrower, or both, it's important you understand the reasons for these changes and differences.​ They also have a heavy effect on the rare metals trade, including silver stocks.

Key Takeaways

Lenders and Borrowers

The money lender takes a risk that the borrower may not pay back the loan. Thus, interest provides a certain compensation for bearing risk. Coupled with the risk of default is the risk of inflation. When you lend money now, the prices of goods and services may go up by the time you are paid back, so your money's original purchasing power would decrease. Thus, interest protects against future rises in inflation. A lender such as a bank uses the interest to process account costs as well.

Borrowers pay interest because they must pay a price for gaining the ability to spend now, instead of having to wait years to save up enough money. For example, a person or family may take out a mortgage for a house for which they cannot presently pay in full, but the loan allows them to become homeowners now instead of far into the future.

Businesses also borrow for future profit. They may borrow now to buy equipment so they can begin earning those revenues today. Banks borrow to increase their activities, whether lending or investing and pay interest to clients for this service.

Interest can thus be considered a cost for one entity and income for another. It can represent the lost opportunity or opportunity cost of keeping your money as cash under your mattress as opposed to lending it. And if you borrow money, the interest you have to pay could be less than the cost of forgoing the opportunity of having access to the money in the present.

How Interest Rates are Determined

Supply and Demand

Interest rate levels are a factor of the supply and demand of credit: an increase in the demand for money or credit will raise interest rates, while a decrease in the demand for credit will decrease them. Conversely, an increase in the supply of credit will reduce interest rates while a decrease in the supply of credit will increase them.

An increase in the amount of money made available to borrowers increases the supply of credit. For example, when you open a bank account, you are lending money to the bank. Depending on the kind of account you open (a certificate of deposit will render a higher interest rate than a checking account, with which you can access the funds at any time), the bank can use that money for its business and investment activities. In other words, the bank can lend out that money to other customers. The more banks can lend, the more credit is available to the economy. And as the supply of credit increases, the price of borrowing (interest) decreases.

Credit available to the economy decreases as lenders decide to defer the repayment of their loans. For instance, when you choose to postpone paying this month's credit card bill until next month or even later, you are not only increasing the amount of interest you will have to pay but also decreasing the amount of credit available in the market. This, in turn, will increase the interest rates in the economy.

Inflation will also affect interest rate levels. The higher the inflation rate, the more interest rates are likely to rise. This occurs because lenders will demand higher interest rates as compensation for the decrease in purchasing power of the money they are paid in the future.

Government

The government has a say in how interest rates are affected. The U.S. Federal Reserve (the Fed) often makes announcements about how monetary policy will affect interest rates.

The federal funds rate, or the rate that institutions charge each other for extremely short-term loans, affects the interest rate that banks set on the money they lend. That rate then eventually trickles down into other short-term lending rates. The Fed influences these rates with "open market transactions," which is the buying or selling of previously issued U.S. securities. When the government buys more securities, banks are injected with more money than they can use for lending, and the interest rates decrease. When the government sells securities, money from the banks is drained for the transaction, rendering fewer funds at the banks' disposal for lending, forcing a rise in interest rates.﻿﻿

Types of Loans

Of the factors detailed above, supply and demand are, as we implied earlier, the primary forces behind interest rate levels. The interest rate for each different type of loan, however, depends on the credit risk, time, tax considerations (particularly in the U.S.), and convertibility of the particular loan.

Risk refers to the likelihood of the loan being repaid. A greater chance that the loan will not be repaid leads to higher interest rate levels. If, however, the loan is "secured," meaning there is some sort of collateral that the lender will acquire in case the loan is not paid back (i.e., such as a car or a house), the rate of interest will probably be lower. This is because the risk factor is accounted for by the collateral.

For government-issued debt securities, there is, of course, minimal risk because the borrower is the government. For this reason, and because the interest is tax-free, the rate on treasury securities tends to be relatively low.

Time is also a factor of risk. Long-term loans have a greater chance of not being repaid because there is more time for the adversity that leads to default. Also, the face value of a long-term loan, compared to that of a short-term loan, is more vulnerable to the effects of inflation. Therefore, the longer the borrower has to repay the loan, the more interest the lender should receive.

Finally, some loans that can be converted back into money quickly will have little if any loss on the principal loaned out. These loans usually carry relatively lower interest rates.

The Bottom Line

As interest rates are a significant factor of the income you can earn by lending money, of bond pricing and of the amount you will have to pay to borrow money, it is important that you understand how prevailing interest rates change: primarily by the forces of supply and demand, which are also affected by inflation and monetary policy. Of course, when you are deciding whether to invest in a debt security, it is important to understand how its characteristics determine what kind of interest rate you can receive.

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What Are the Forces Behind Interest Rates and What Causes Them to Rise?

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An interest rate is the cost of borrowing money. Or, on the other side of the coin, it is the compensation for the service and risk of lending money. In both cases it keeps the economy moving by encouraging people to borrow, to lend, and to spend.

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https://www.canada.ca/en/financial-consumer-agency/services/interest-rates-rise.html

This website is from the Government of Canada, it talks about how to manage your money when interest rates rise.

- An Interest rate can affect you if you have a mortgage or a loan with varying interest rates. The best way to avoid a change in your mortgage or loan interest rates is by having a fixed rate.

- The interest rate is used to calculate how much u need to pay to take a loan, that money that you have to pay back to the lender.

- Reducing down your expenses, paying down the debt as much as possible to deal with interest rates, pay the most expensive interest rates to pay less interest with your other loans.

- Having an emergency fund can help deal with unexpected expense

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When a rise in interest rates may affect you

A rise in interest rates often means that it will cost you more to borrow money.

A rise in interest rates may affect you if:

you have a mortgage, a line of credit or other loans with variable interest rates

you'll need to renew a fixed interest rate mortgage or loan

Your financial institution could also increase your interest rate if you don't make your payments on time.

How interest rates work

Interest rates rise and fall over time. If you're borrowing money, interest is the amount you pay to your lender to use the money. The lender uses the interest rate to calculate how much you need to pay to borrow money.

Financial institutions set the interest rate for your loan. This could be a mortgage, a line of credit or another type of loan.

You'll find your interest rate in your loan agreement. Your financial institution must also provide you with certain information about interest rates on your loan.

Learn more about your right to information when you borrow money.

Fixed and variable interest rate loans

When you get a loan, your financial institution may offer you a fixed or a variable interest rate.

A fixed interest rate will stay the same for the term of your loan. A variable interest rate may increase or decrease over the term of your loan.

Some lenders may offer you a lower introductory rate for a set period for certain types of loans. Make sure you're still able to afford the payments at the regular higher interest rate.

Dealing with a rise in interest rates

Pay down your debt as much as possible to deal with a rise in interest rates. If you have less debt, you may be able to pay it off more quickly. This may help you avoid the financial stress caused by higher interest rates and bigger loan payments.

You may deal with a rise by using these tips:

reduce expenses so you have more money to pay down your debt

pay down the debt with the highest interest rate first. This may allow you to pay less interest over the term of your loan

consolidate high interest debts, such as credit cards, into a loan with a lower interest rate

avoid getting the maximum mortgage or line of credit that a lender offers you

avoid taking on unnecessary debt with things you want but don't need

avoid borrowing more money as it could limit your ability to save for your goals

find ways to increase your income to help you pay down debt

make sure you have an emergency fund to deal with unexpected expenses. This may help you cover higher loan payments to avoid penalties

Get tips on paying down your debt and making a plan to manage your debt.
Trigger rates and negative amortization

A variable interest rate mortgage with fixed payments may be riskier than you expect. When interest rates rise, more of each payment automatically goes toward interest costs.

You could end up in a situation where none of your payment goes toward paying down the principal. Instead of paying down your mortgage, the total amount you owe on your mortgage will increase. You may have to contribute more capital to avoid problems renewing your mortgage. Acting early is important to prevent the situation from getting worse.

If you have a variable interest rate mortgage with fixed payments, contact your financial institution as soon as possible to discuss your options.

You may have a mortgage or a loan with a variable interest rate and fixed payments. When interest rates rise, you may reach your trigger rate.

Your trigger rate is the interest rate at which your mortgage or loan payment only covers interest costs. When you reach your trigger rate, none of your payment goes toward paying down the principal. This means that your payment doesn't cover the full amount of interest for that period.

When this happens, your bank will generally add the unpaid interest to the balance you owe on your mortgage or loan. This brings you into negative amortization.

In cases of negative amortization, unpaid interest builds up and the total amount you owe will continue to increase. If you don't take action, you'll owe more money than you expected when you agreed to the mortgage or loan.

The best way to find out your trigger rate is to review your mortgage or loan agreement. You may also contact your financial institution. They'll be able to calculate the exact rate for you. They'll also be able to let you know your options if you reach your trigger rate.

If you reach your trigger rate, your financial institution may require you to:

increase your payments

make additional payments to cover the excess interest

change to a fixed rate mortgage or loan

If you're not at the maximum amortization period allowed, your financial institution may offer to extend your amortization. This would avoid having to increase your payments. However, extending your amortization means paying for a longer period and paying more interest in the long run.

When interest rates are on the rise, contact your financial institution as soon as possible. Ask them about your trigger rate and discuss your options.

Impact of a higher interest rate on your loan payments

The following examples show the impacts of an increase in interest rates on your:

mortgage

personal loan

credit card

How a rise in interest rates could affect your monthly mortgage payments

Suppose you have a mortgage of $300,000 with a variable interest rate and a 25-year amortization. Your interest rate is currently 5% and it goes up to 6.5%. Your mortgage payment will go from $1,745 to $2,009. An increase of $264 a month.

Figure 1: Example of monthly payments for a mortgage of $300,000 with an amortization of 25 years at various interest rates

Text version: Figure 1

Interest rate

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

Monthly payment

$1,270

$1,344

$1,420

$1,498

$1,587

$1,660

$1,745

$1,831

$1,919

$2,009

$2,101

Use the Mortgage Calculator to see the impact of an interest rate increase on your mortgage.

How a rise in interest rates could affect your personal loan monthly payments

Suppose you have a personal loan of $10,000 with a variable interest rate and a 2-year term. Your interest rate is 14.99%.

Your loan payment will increase by $24 a month if interest rates rise by 5%. That adds up to $552 more in interest over the 2 years.

Figure 2: Example of monthly payments for a personal loan of $10,000 with a 2-year term at various interest rates

Text version: Figure 2

Interest rate

9.99%

14.99%

19.99%

29.99%

39.99%

Monthly payment

$461

$485

$509

$559

$612

When a rise in interest rates could affect your credit card payments

There are times when fixed interest rates on credit cards could also rise.

For example, you have to make your minimum monthly payments by the due date. If you don't, your financial institution may increase your interest rate. In the case of credit cards, the rate will usually increase by 5%, but the increase may be higher.

Short-term promotional financing or deferred interest offers may be another reason that your fixed interest rate may increase. Make sure you know how long an offer lasts. This way, you'll expect the increase in your minimum monthly payments once it ends.

Banks and other federally regulated financial institutions must notify you before an interest rate increase takes effect.

Learn more about your right to information when getting a credit card.

Reviewing your budget with your new debt payments

If interest rates rise and your debt payments increase, you may need to review and adjust your budget.

If interest rates rise and your debt payments increase, you may need to review and adjust your budget.

To prepare yourself, try the following:

talk to your lenders to find out by how much your payments will increase

look at how the higher payments will impact your budget and your ability to save for your goals

see how you may reduce expenses or earn more money to pay off your debt faster

Use the Budget Planner to create or review your budget.

Make your budget and review it. If you expect challenges in making your payments, be proactive and don't wait to seek help. Contact your financial institution to discuss your options.

They may be able to offer temporary accommodations such as:

making special payment arrangements

allowing you to skip a payment on your loan

mortgage payment deferrals

Learn more about mortgage relief options.
You may also want to talk to a credit counsellor. They may help you explore the different solutions that are available to you.
Learn more about getting help from a credit counsellor.
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interest rates; rise in interest rates; higher interest rates; trigger rate; negative amortization; fixed and variable; debt repayment

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Managing your money when interest rates rise

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How your loan payments increase when interest rates rise by 0.5%, 1%, 2% and 3%. Find out how paying off debt can protect you from financial stress if interest rates rise.

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- Price increase does not happen at once, it usually takes its time to set.
In the picture above we can see just how much it affects the foods we eat. thesame amount we use to purchase a burger in 1990 would be the same price for a much smaller burger.

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What is inflation?

Originally, the term "inflation" was used to describe an increase in the general price level induced by an imbalance between the money supply and trade needs. Today, economists use the term to refer to a rise in the price level. It describes the increase in the prices of goods and services over time.

Usually expressed as a percentage, inflation indicates a decline in the purchasing power of each unit of a nation's currency. As a result, once prices rise - your money can buy less.

The loss of purchasing power has a great impact on the overall cost of living for the common public, leading to a deceleration in economic growth. To deal with this problem and keep the economy operating smoothly, a country's appropriate authority, such as the central bank, takes the necessary steps to keep inflation within acceptable limits.

Simply put, inflation definition is the long term rise in the prices of goods and services caused by the devaluation of the currency. Just like with any other financial phenomenon, there are both positive and negative effects of inflation.

Where have you heard about inflation?

You've probably heard about inflation many times before. The term could cross your path from different sources: financial news, TV programmes, advertisements, newspapers, social organisations, employers, the internet or even your neighbours.

Inflation affects many aspects of your life, increasing your cost of living. It dictates how much you pay to buy a gallon of milk, fill your gas tank or get a haircut.

What you need to know about inflation...

The opposite of inflation is deflation, a sustained decline in the general price level of goods and services. The inflation rate is the measurement of inflation.

Major changes don't happen overnight. Inflation usually takes its time to creep on the nation. We continue our normal consumption and spending habits, without seeing the almost imperceptible increase of prices. However, the impact of inflation is undoubtedly huge.

Apart from influencing our salaries, it makes food prices go up, transportation charges increase and the cost of other goods and services skyrocket over time.

Here is a good example of inflation: in 1980 in the US a new house would cost around $76,000. The median annual income was around $17,710. In comparison, in 2011, the average house price was around $139,000, while the median annual household income was $50,233. The vast difference in prices was caused by inflation.

A sudden increase in the price of goods and services has a domino effect on the economy. The depreciation of money comes with a decrease in demand for products and services. Unemployment rates rise, as manufacturing firms are forced to lay off workers. The fear of inflation can also result in hoarding, when retailers and consumers buy excessive amounts of certain goods to not pay higher prices once inflation occurs.

There are a few types of inflation:

Note that inflation can be measured in a variety of ways, depending on the types of goods and services considered.

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What is inflation | Definition and Meaning

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Originally, the term "inflation" was used to describe an increase in the general price level induced by an imbalance between the money supply and trade needs. Today, economists use the term to refer to a rise in the price level. It describes the increase in the prices of goods and services over time.

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Due to inflation and the rising prices of goods over time we tend to buy less.

It comes as a shock to some of us when we try buying a product we usually buy, and we see a jump in prices.

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https://www.youtube.com/watch?v=HQ-Kg_xgdhE
This video discusses what inflation is.
- Inflation is when prices in an economy rise for goods and services.
- Inflation = average rate that prices are rising
- Old prices will be put onto a calculator and will change the price giving it a single percentage number "the rate of inflation".
- Inflation helps set welfare payments and it can help you ask how much of a raise you want from your boss. A little bit of inflation helps an economy grow and wards off deflation.
- Inflation can be bad for savers. When inflation damages your debt, it will damage your savings. $100 in your bank account will buy you less today in 5 years. If your income does not match today's prices, you will lose money.
- In stable economies, inflation usually goes up by 2% a year.

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https://www.youtube.com/watch?v=iiEiRZhfOl8
- Inflation is caused by the confidence people have in their money
- Inflation is caused when the government's currency is threatened by something serious, such as war. It will then lose intrinsic value.
- Inflation is also caused when people have to much money but there is little supply
- Inflation can also be caused by the ratio of buying and producing in the economy, also called supply and demand. For instance, there would be no inflation or deflation of prices if everyone purchased the exact amount of products and services produced over the course of a year. Prices will change, though, if abnormally high or low levels of production or demand occur for the items.

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https://credit.org/blog/what-does-interest-rate-really-mean/
This website talks about how interest rates & how does interest work

Saving Account Interest

- It works when u put money into your saving account, and the bank uses that money to loan to other people, the bank will provide u interest for your savings.

Federal Reverse Interest rates
- The bank will charge another for quick overnight loans that need to meet their legal reserve.

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Interest is the price you pay to borrow money. When a lender provides a loan, they make a profit off of the interest paid on top of the original loan amount.

Interest rates affect the true amount you pay for homes, cars and other purchases made with credit. How an interest rate is determined depends on the type of loan. Use this infographic as a guide to how each type of interest rate works.

Interest rates play a central role in our financial lives, but sometimes it's confusing to sort them all out. You might pay 3.5% interest on your auto loan, 4.5% on a home loan, 13% on your credit cards but only earn 0.5% in your savings.

What's going on? Why are all of these interest rates so different?

In order to truly take control of your finances, you must first understand what an interest rate means, who sets interest rates and the effect interest rates have on your everyday budget. Check out these examples to learn exactly how interest rates work.

How Does Interest Work?

Interest effects the overall price you pay after your loan is completely paid off. For example, if you borrow $100 with a 5% interest rate, you will pay $105 dollars back to the lender you borrowed from. The lender will make $5 in profit.

There are several types of interest you may encounter throughout your life. Every loan has its own interest rate that will determine the true amount you owe. Before you borrow, make sure you understand exactly how an interest rate will affect how much you owe at the end of the day.

What is Considered a High Interest Rate?

Every loan type has its own average amount of interest. The rate is calculated based on a number of factors, including:

The principal amount

The length of the loan term

The repayment schedule

Monthly payment amount

Market factors

The borrower's credit-worthiness

Because no two loans are alike, it can be hard to determine what a good interest rate is. Your credit cards, auto loans, personal loans and mortgages all have unique factors that are used to determine your interest rate.

What is an APR?

An Annual Performance Rate, or APR, is another rate you may encounter when taking out a personal loan, mortgage loan, auto loan or credit card. This rate is the amount of interest you will pay over the course of a year, including any extra fees your loan process may incur.

T he APR will typically be .1 to .5% higher than the interest rate. If the APR is higher, expect to have more fees.

Many borrowers compare APRs when deciding between different loan options. These rates are valuable negotiating tools - it is not uncommon to reference the rate of a competing lender in order to secure the best rate available.

Types of Loans and Interest Rates

How Does Mortgage Interest Work?

Taking out a mortgage loan is the largest loan most consumers will ever have, so it's important to consider all the aspects of buying a home. The interest that mortgage lenders charge on the amount they lend to home buyers is based on the buyer's credit and the overall economic trends in the country.

Over the past 40 years, the average mortgage rate, or interest rate on a mortgage loan has fluctuated between 3.56% and 16.64%. While purchasing a home is a great example of a financial goal, before you take out a mortgage loan, it's important to do your research to determine if now is the time to buy.

If you want to find the best loan, take a look at each lender's quote carefully. Be sure to consider:

Interest rates

Closing costs

Administration fees

Brokerage fees

Some of these costs may be included in the APR. Make sure that you inquire about what is covered before making a side-by-side comparison.

As of 2019, the average mortgage loan interest rate is around 4-5%.

How Does Credit Card Interest Work?

Unlike auto and home loans, banks and lenders have no collateral to collect in the event that a borrower defaults or stops making payments on their credit card. As a result, credit cards will have a higher interest rate than other loan types to offset overall losses. The average credit card interest rate is in the 14-24% range.

Credit card balances are limited. If you handle them correctly, you can avoid paying significant amounts of interest. Credit cards are a great tool if you know how to manage them, but you don't want to end up with too many credit cards that you can't manage the balances.

How Does Interest Work on a Car Loan?

When you apply for a car loan, the car is used as collateral. Most lenders will require you to have auto insurance to protect the collateral while the loan is being repaid. If you miss any payments, the bank can repossess the car to cover the costs of the loan.

Because the process of repossessing a car is fairly straightforward and doesn't cost the lender very much in fees, borrowers can expect lower interest rates on car loans. Auto loans typically have interest rates in the 4-5% range.

How Does Interest on Payday Loans Work?

You may have heard about payday loans and their unreasonably high interest rates. But how can these loans have rates that are so high?

A payday loan is a small, short-term loan used when money is needed immediately. Borrowers are expected to repay the loan when they receive their next paycheck. To encourage quick repayments, lenders will often use extremely high interest rates as service fees.

For example, a payday loan might be as low as $100 with repayment due in 2 weeks. If this loan carries a $15 fee, then the APR will be around 400%.

Unlike credit cards and mortgages, this fee is not repaid over the course of a year. Although $15 may not seem like much, it is a high interest rate compared to the $100 you initially borrowed.

How does $115 result in an approximate 400% APR rate?

$15 is 15% of the $100 borrowed. The APR is the annual percentage rate, so 15% must be multiplied by the number of days in a year:
.15(365) = 54.75
Divide the answer by the length of the loan (2 weeks=14 days).
54.75/14=3.910.
Move the decimal point to the right two places to get your APR. So a $15 charge for a 2-week loan of $100 means the APR is 391%.

What are Federal Reserve Interest Rates?

The Federal Reserve Bank, or Fed, is the central bank in the United States . This bank sets what is called the "federal funds rate," a rate one bank will charge another bank for quick, overnight loans needed to meet their legal reserve mandates.

The Fed also sets the "federal discount rate," which is interest the Fed charges banks when they borrow from the Federal Reserve itself.

These Federal Reserve rates impact the rates that banks charge for loan products.

Generally, the Federal Reserve will raise interest rates in good economic times, and lower them when the country is facing recessions. Low rates encourage consumers to spend rather than save, thereby re-boosting a receding economy. The rates are meant to help control inflation.

Lenders will raise and lower their rates to match the Federal Reserve. An example of loans that will be affected by Federal Reserve rates include:

Auto loans

Credit cards

Savings accounts

Certificates of Deposits (CDs)

One interest rate that isn't directly affected by the Fed is your mortgage rate. Mortgage rates are affected by investors who buy bonds and mortgage-backed securities. Although a federal hike may have a small impact on mortgage rates, experts generally look to other factors.

How Does Savings Account Interest Work?

Typically, savings accounts are viewed as opposites of a loan rather than borrowing money, you are providing money to the bank to loan to other people. As an incentive for keeping your savings with a bank, you will often be provided interest on your savings.

Because the bank will be paying you rather than making money from your interest, the rates will be drastically smaller. The average annual interest rate is around the 1-2% range.

Savings accounts also come with several stipulations . You may have limits on how you use the account, like minimum balances. Accounts with fewer limitations might pay lower interest rates.

Saving accounts are best for emergency funds. To make more on your savings, consider investing in a savings vehicle that will earn you more. Other savings accounts that will increase your rate of return include:

CDs

Retirement funds

Money market funds

Bonds

Have More Questions About Interest Rates?

Interest doesn't have to be a threat. If you have questions about paying interest, taking out loans or any other personal finance topics, reach out to our credit coaches today.

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What are Interest Rates & How Does Interest Work?

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Interest is the price you pay to borrow money. When a lender provides a loan, they make a profit off of the interest paid on top of the original loan amount. Interest rates affect the true amount you pay for homes, cars and other purchases made with credit.

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Welcome to our padlet wall. On this padlet wall we will be discussing about Inflation and Interest Rates.

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Welcome to our padlet wall. On this padlet wall we will be discussing about Inflation and Interest Rates.

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https://www.youtube.com/watch?v=GHHesANT6OM
- A fee paid by the borrower to the lender is known as interest, and the interest rate is the sum that the borrower is required to pay.
- For instance, if you take a loan from a bank for something such as education, and you take $10,000, in exchange for the $10,000 loan, the bank will charge you 5% interest annually until the $10,000 loan is paid. Each year, you would have to pay $500 interest.
- Another instance is you can keep your money in a savings account at a bank, and you will be loaning your money to the bank. The bank can then use your money for investments or use the money to loan to other people. The longer you keep your money in the bank, the more interest you will earn, which means the more money you will make.

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Interest Rates | by Wall Street Survivor

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https://www.nerdwallet.com/ca/banking/what-is-interest-rate

This website talks about what is an Interest Rate.

- The Canadian prime rate is 5.95%, its the average of the 6 big banks' official prime rates.

- Prime don't change, they often go years without changing.

- Factors that change interest rates are what interest rates are offered to you including the amount of money borrowed, the time it took to borrow money and pay it back, and your credit score.

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Interest rates are discussed a lot in personal finance. Understanding what interest is, how it works, and what makes a rate good or bad will help you make smart financial choices.

What is an interest rate?

The easiest way to understand interest is to look at it as the cost of borrowing money. The higher the interest rate, the more money will be added to the original amount borrowed.

We often think of interest rates as a bad thing; extra money owed to credit card companies or on car loans and mortgages. In these cases, you want a low rate, so you don't have to pay too much extra.

However, interest rates also apply to your savings - which are, in effect, a loan you're extending to the bank - but in this case, a high rate is preferable since you're the one earning interest.

" MORE: What is compound interest?

What is a prime rate?

Interest rates can fluctuate regularly and are strongly influenced by what is known as the prime rate. This number also shifts but is considered the reference point for interest rates on several different types of loans, including mortgages, home equity lines of credit (HELOCs), car loans, and some types of credit cards.

As the prime rate changes, so do the rates of interest charged on these types of loans. If you have a variable-rate loan, you'll see a difference in the interest you pay right away. However, changes in the prime rate also affect how much interest banks and other lenders charge for new or refinanced fixed-rate loans.

" MORE: What's the difference between a fixed and variable-rate mortgage?

So, who sets the prime rate? Each bank will set its own prime rate, but the big Canadian banks - BMO, Scotiabank, CIBC, RBC, National Bank, and TD - usually have the same prime rate. This rate is determined in part by the Bank of Canada (BoC) overnight rate.

When the overnight rate increases, it's more expensive for banks to borrow money. So the banks subsequently raise their prime rates to help cover costs by charging clients more interest. Similarly, when the BoC drops the overnight rate, banks will often lower their prime rates.

However, the overnight rates are not the only thing that influences the prime rate. The bond market, costs of long-term deposits, and competition for funds also play a role in determining the prime rate.

What is the prime interest rate in Canada?

Right now, that makes Canada's prime rate 5.95%. The prime interest rate in Canada is calculated as a mode average of the six big banks' official prime rates.

As said earlier, the banks determine their prime rates based on the overnight rate as determined by the BoC. The BoC typically increases the overnight rate when it is worried about inflation exceeding the upper limit of 3%. It cuts the overnight rate if it is concerned that inflation will fall short of the 1% floor. The prime rate normally rises or falls accordingly right after the BoC announces a change.

Types of products with interest rates

Many financial products in Canada have interest rates applied, including the following:

These products may also have fixed or variable options, but, regardless, a change in the prime rate will eventually impact the interest rates on these products.

What makes an interest rate good or bad?

We often think of low rates as good, but this isn't always the case. It depends on whether you are looking at the interest rate as a borrower or as a saver.

As a borrower, lower interest rates are ideal because they make things like financing a car or home more affordable. At the same time, however, low interest rates may lead you to take on more debt than you can afford, which can be especially problematic if interest rates increase while you are still paying off the debt. To help ensure you get the best rates as a borrower, stay on top of all payments, try to avoid excessive debt, and make sure you have a healthy credit score.

As a saver, you want to see high interest rates so you can get further ahead. This concept is especially important for individuals who are older/retired and/or risk-aversive because they tend to invest in interest-bearing assets that have guaranteed returns. In these cases, low interest rate environments would prevent them from having the necessary savings and income for retirement.

Both borrowers and savers should shop around for interest rates to find the best deals and remember to keep an eye on inflation.

The BoC meets eight times a year, though they don't usually change rates at these meetings. Sometimes, the BoC will go a couple of years without changing its overnight rate.

Other factors that may influence the interest rates offered to you include the amount of money borrowed, the length of time the money is borrowed, and your credit score and history.

Interest rate is just the rate of interest. The annual percentage rate (APR) includes all the fees from the lender plus the interest charges that you will pay in one year. If the APR is much higher than the interest rate, you know the lender's fees are high.

About the Author

Hannah Logan

Hannah Logan is a writer and blogger who specializes in personal finance and travel. You can follow her personal travel blog EatSleepBreatheTravel.com or find her on Instagram @hannahlogan21.

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What Is an Interest Rate? How Does it Work? - NerdWallet Canada

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Interest rates are discussed a lot in personal finance. Understanding what interest is, how it works, and what makes a rate good or bad will help you make smart financial choices. The easiest way to understand interest is to look at it as the cost of borrowing money.

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https://www.youtube.com/watch?v=R8VBRCs2jTU
This video describes how raising interest can control inflation in our economy. To begin with, a little inflation is OK since it keeps the economy moving forward at a reasonable pace. Yet it's a concern when inflation persists at a high level for a long time. Because employees will need to be paid more at higher rates, company expenses will rise. Increasing interest rates can drastically slow an economy down, but there is a wait in the brakes. The entire impact of changing interest rates on slowing down inflation may not be felt for two years. As central banks are aware of this, they attempt to read the future when they set interest rates, although doing so is difficult. Even if central banks do make the right decision, a crash might still occur.

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How does raising interest rates control inflation?