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An interest-rate reduction is usually an incentive to spend more - as the card-holder will pay less for their borrowing.

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Q: How might a reduction in interest rate on credit card borrowing affect people choice whether to spend or to save?
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What were Barclays fined in July 2012?

The President of Barclays, Bob Diamond, was hit with fines of £290m for its "serious, widespread" role in trying to manipulate the price of crucial interest rates that affect the cost of borrowing for millions of customers around the world.


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Interest rates are on opportunity cost of holding cash. Basically, if you have cash in your wallet you aren't earning interest in a bank account. Interest rates affect the cost of borrowing money (eg. credit cards, mortgages, personal loans) and affect the interest rate on your savings account. The nominal or base rate is set by the central bank in most countries. This basically gives an indicator to banks about what their interest rates should be set at, so at the moment in the US and UK interest rates are 1% or lower but that doesn't mean interest rates on new mortgages will be at this level because the banks charge extra to make a profit. Hope this helps!


Does share capital effect borrowing power?

Yes if company has to maintain certain debt equity ratio then it can affect the borrowing power as more share capital will be adjusted to correspondant debt ratio.


What factors affect the true cost of borrowing money?

the interest rate and a rebate. The interest rate is self explanatory. As for the rebate, some loans have money taken out of them and if you're on time to pay the first 12 repayments, you get that rebate money back and don't have to pay it. However, if you mess up, you lose that rebate and end up paying more.


Why interest rate has no affect on the aggregate demand?

The interest rate does affect aggregate demand. As the interest rate falls, aggregate demand increases and vice-versa.


How do interest rates affect household saving?

Well you need to look at it from both the perspective of receiving interest payments and paying interest. In relation to paying interest, household savings generally decline with low rates. This is because when you are paying low interest rates on the things you purchase you are also receiving low rates on your savings. This usually has the affect of boosting the economy. If rates are low people are enticed to spend their money since a) they are getting a small return on their savings and b) borrowing money is costing them little. When interest rates are high it generally increases household savings for exactly the opposite reasons low rates decrease savings. High interest rates when borrowing also mean higher rates for saving. Economies that are experiencing high rates of inflation will raise interest rates. Nobody wants to pay alot in interest so as rates climb they borrow less and save more. This is removing money from the economy and putting it into savings thereby slowing demand for goods and increasing supply. This will usually reign in inflation, and increase household savings.


Compound Interest and Your Return?

Compound Interest and Your Return How interest is calculated can greatly affect your savings. The more often interest is compounded, or added to your account, the more you earn. This calculator demonstrates how compounding can affect your savings, and how interest on your interest really adds up!