Do banks and credit cards make more money? Or is all the extra money they collect going to pay extra interest on loans from the government?
Does the government make more money?
Who’s getting the 5% extra on my credit card interest?
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Whoever lent you the money get that extra money. If they owe money (to other banks, to the government), they’ll have to pay extra to whoever they owe to. Of course, that depends on the agreement. AFAIK, most debts follow the interest rate contracted and won’t change. So only new loans will get that higher interest.
The reason for the rise in interest rates is usually to control inflation (unless you’re borrowing from loan sharks; in that case, their rates are high because borrowers are desperate enough). When rates are higher, people are less likely to borrow, which means less spending.
On the flip side, interest rates on investments also increase (on investments that depend on interest rates and not growth). So if you have spare money, that’s the best moment to invest (unless you believe rates will go even higher, I guess).
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