In this lesson we will analyse the effect of rising and falling interest rates on personal financial decisions.
Interest rates are the price paid for the use of money. For borrowers, interest is the cost of having funds advanced to them. For lenders and those who deposit money into financial institutions (i.e savers), interest is the reward for making their funds available for the borrower’s use.
Let’s work together to calculate the cost of borrowing and the return on savings at different rates of interest:
For additional practise please complete the following as homework: interest rate extension exercises
Prepare for our next lesson on Interest Rates and Consumer Confidence by giving some thought to the following:
- What effect do changes in the interest rate have on consumer confidence?
- The level of consumer confidence affects consumer spending, savings and borrowing decisions. Can you name some key indicators of consumer confidence?