Official interest rates (2024)

FAQs

What are people talking about when they say interest rates? ›

To put it simply, interest is the price you pay to borrow money — whether that's a student loan, a mortgage or a credit card. When you borrow money, you generally must pay back the original amount you borrowed, plus a certain percentage of the loan amount as interest.

The official cash rate (OCR) is the term used in Australia and New Zealand for the bank rate and is the rate of interest which the central bank charges on overnight loans between commercial banks.

Consumers have a lot of purchasing power when interest rates are low. This translates into increased spending that stimulates the economy. High-interest rates lead people to reduce their spending. This often results in an economic downturn.

Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall.

Current mortgage interest rate trends

The average 30-year fixed rate dropped from 7.02% on May 16 to 6.94% on May 23. The average 15-year fixed mortgage rate also fell, going from 6.28% to 6.24%. After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023.

Interest rates can be seen as 'good' or 'bad' depending on your perspective. For borrowers, lower rates are generally better. They make loans more affordable. For savers and investors, higher rates are usually more desirable.

Consequently, Bank Rate (also known as the 'official rate') effectively sets the general level of interest rates for the economy as a whole. Note, though, that for individuals the rate paid on debt products will be at a margin – sometimes a very high margin – over Bank Rate and bank base rates.

What is an interest rate? When you borrow money, interest is the cost of doing so and is typically expressed as an annual percentage of the loan (or amount of credit card borrowing). When you save money it is the rate your bank or building society will pay you to borrow your money.

About the FOMC

The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy. The Federal Reserve controls the three tools of monetary policy--open market operations, the discount rate, and reserve requirements.

The financial sector generally experiences increased profitability during periods of high-interest rates. This is primarily because banks and financial institutions earn more from the spread between the interest they pay on deposits and the interest they charge on loans.

How do raising interest rates hurt people? ›

Higher interest rates can make borrowing money more expensive for consumers and businesses, while also potentially making it harder to get approved for loans. On the positive side, higher interest rates can benefit savers as banks increase yields to attract more deposits.

Central banks set benchmark interest rates to guide borrowing costs and the pace of economic growth. Lower rates spur growth while higher ones restrain spending, investment, and stock market valuations. If rates rise too quickly, demand may decline, causing businesses to reduce output and cut jobs.

They also make the cost of borrowing more expensive. Higher interest rates help to slow down price rises (inflation). That's because they reduce how much is spent across the UK. Experience tells us that when overall spending is lower, prices stop rising so quickly and inflation slows down.

When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher. Want to keep reading? Learn the basics of inflation.

A higher interest rate environment can present challenges for the economy, which may slow business activity. This could potentially result in lower revenues and earnings for a corporation, which could be reflected in a lower stock price.

An interest rate is the cost you pay to the lender for borrowing money to finance your loan, on top of the loan amount or your principal. The higher the interest rate, the more you'll pay over the life of your loan.

Higher interest rates increase the return on savings. They also make the cost of borrowing more expensive. Higher interest rates help to slow down price rises (inflation).

The interest rate is the cost of debt for the borrower and the rate of return for the lender. The money to be repaid is usually more than the borrowed amount since lenders require compensation for the loss of use of the money during the loan period.