What are interest rates?

Let’s start with the basics If you borrow money, you’ll have to pay back a little extra... ...to make it worthwhile for the lender Well, I think we can make you this loan, you have a good reputation... ...we know you’re reliable I’m glad you think so This is the interest rate So if you are taking out a loan... ...you want the interest rate to be as low as possible... ...so you don’t have to pay that much back On the flip side, if you want to save money... ...then a high interest rate means you can earn more on your savings See it as a reward for leaving money in your account But the size of your reward depends on the circumstances There’s no single interest rate in the economy You’ve got thousands of banks setting their own commercial rates That’s all influenced, though, by the interest rate that the central bank sets