Interest Rates – GCSE Business Studies Revision

What is Interest?

  • It’s what you have to pay to borrow money
  • Banks lend out money and charge interest on it, so you have to pay back extra at the end of your loan
  • The interest rate shows the percentage extra you have to pay
  • Couldn’t figure out where to write it, but the Chancellor of the Exchequer is the government minister who makes decisions to do with the economy

Interest Rates

  • High interest rates mean you pay more back and lower interest rates mean you pay less back
  • They can change!
  • Variable Interest Rates are interest rates that change
  • Fixed Interest Rates are rates that stay the same for your whole loan (could be good or bad because you don’t know what the variable ones will do)

Bank of England

  • The Bank of England is called a central bank
  • They are in charge of the interest rates
  • They decide what percentage interest to charge all the other banks to borrow money from them
  • They set the bank base interest rate which all the other banks tend to follow (they don’t have to, but can choose to be cheaper or more profitable, or whatever)

Effects

  • If the Bank of England puts interest rates up, people will have to pay more back on their mortgages and other loans
  • This means they will have less to spend on other things
  • However, if the Bank of England decreases interest rates, the opposite happens, and people have more ‘spare’ cash.
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About Matt

I like writing, filmmaking, programming and gaming, and prefer creating media to consuming it. On the topic of consumption, I'm also a big fan of eating.
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