Interest Rates Interest rates affect how much people are likely to save and how much they are likely to borrow.


Savings: Interest is the reward given by banks and other financial institutions for saving money with them.


Borrowing: Interest is the financial cost/fee charged for borrowing money.


Interest is expressed as a percentage, such as an annual percentage rate (APR) for borrowing or annual equivalent rate (AER) for savings.


KEYWORDS


The Impact Of Changing Interest Rates On Savings And Borrowings


Higher Interest Rates Savings: Savings will increase because banks pay a higher interest on deposits.


Borrowing: Borrowing will decrease because loans and mortgages become more expensive to repay.


Lower Interest Rates


Savings: Savings will decrease because banks pay less interest on deposits. Some people may look for higher returns by moving money into riskier assets such as shares or cryptocurrencies. Borrowing: Borrowing will increase because loans and mortgages are cheaper to repay.


Who Sets The Interest Rate In Ireland?


The European Central Bank (ECB) sets and adjusts interest rates for the euro area (the countries that use the euro, including Ireland). These rates influence the interest rates used by banks and financial institutions in Ireland.


The ECB may lower interest rates to encourage economic growth by reducing the cost of borrowing and increasing spending in the economy.


They do this if inflation is too low and they want to encourage spending. The ECB may raise interest rates to reduce spending by making borrowing more expensive.


They do this if inflation is too high and they want to lower spending to help bring inflation back down.


397


STRAND 3 CHAPTER 35: Economic indicators


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