Ilias Saidzada | 08.12.2025
How Interest Rates Affect Our Everyday Lives
Whenever the topic of interest rates comes up, whether they are rising or falling, it usually gives the impression that only the accountants or the economists are concerned with it. However, the reality is that interest rates determine most of our daily life activities, which include borrowing money, saving money and even making purchasing decisions.
In simple terms, high interest rates mean that borrowing is more costly. For instance, consider taking out a loan for a laptop or paying for something by monthly instalments. If the interest is high, then the monthly payment will also be high. This is the reason why governments begin to increase the interest rate when inflation is high; they want to curb the people’s spending, thus slowing down the price increase.
Conversely, when interest rates are reduced, borrowing becomes cheaper and that encourages more people to spend money. This is where the term coming down of interest rates or “growing” economies comes from, as it is considered the major reason for growing or developing economies. The process is simple: more borrowing leads to more spending and thus more business profits.
But here is the relevance for ordinary people: banks pay interest on savings accounts, too. When the rates are high, saving becomes really good, and one gets rewarded. All the low rates do is render the money inactive or just lying around doing nothing. Thus, the scenario with rising interest rates is that they benefit savers while they harm borrowers and vice versa with falling rates. It is like a tightrope walk, balancing which affects different people in different ways.
At the same time, this is also true for business. A firm that is planning to develop could take a loan for a new branch opening or equipment purchase. In such a situation, if the interest rates go up, all of a sudden, that expansion would be more costly, so the company might postpone its growth. This can have a negative impact on job creation in some sectors and even on the salary levels for such employees.
A great number of people are in the same situation where they have to pay off mortgages, which are essentially long-term loans to acquire a home. A sudden rise in rates leads to the mortgage being much more expensive. It’s not only that families have to adjust their monthly budgets, but they also suffer from stress and anxiety caused by the constant shifts in interest rates.
In simple terms, high interest rates mean that borrowing is more costly. For instance, consider taking out a loan for a laptop or paying for something by monthly instalments. If the interest is high, then the monthly payment will also be high. This is the reason why governments begin to increase the interest rate when inflation is high; they want to curb the people’s spending, thus slowing down the price increase.
Conversely, when interest rates are reduced, borrowing becomes cheaper and that encourages more people to spend money. This is where the term coming down of interest rates or “growing” economies comes from, as it is considered the major reason for growing or developing economies. The process is simple: more borrowing leads to more spending and thus more business profits.
But here is the relevance for ordinary people: banks pay interest on savings accounts, too. When the rates are high, saving becomes really good, and one gets rewarded. All the low rates do is render the money inactive or just lying around doing nothing. Thus, the scenario with rising interest rates is that they benefit savers while they harm borrowers and vice versa with falling rates. It is like a tightrope walk, balancing which affects different people in different ways.
At the same time, this is also true for business. A firm that is planning to develop could take a loan for a new branch opening or equipment purchase. In such a situation, if the interest rates go up, all of a sudden, that expansion would be more costly, so the company might postpone its growth. This can have a negative impact on job creation in some sectors and even on the salary levels for such employees.
A great number of people are in the same situation where they have to pay off mortgages, which are essentially long-term loans to acquire a home. A sudden rise in rates leads to the mortgage being much more expensive. It’s not only that families have to adjust their monthly budgets, but they also suffer from stress and anxiety caused by the constant shifts in interest rates.
