why interest rates of 5% encourage saving, when inflation is 5% in the UK
In: Economics
>why interest rates of 5% encourage saving, when inflation is 5% in the UK
If the return on an investment is higher than the return on alternative attainable investments, then that’s a good investment. Inflation doesn’t really factor into this.
The main contributor to inflation is demand for goods growing faster than the supply of goods.
High interest increases the attractiveness of saving your money, whilst also making it more difficult to borrow money that you dont have. it more attractive to save.
Both these point reduce economic spending and so reduce demand for goods.
Are we in agreement that 5% interest rate is higher than average? Or do you think it’s generally low?
(forget the 5.1% inflation bit for a moment)
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