why interest rates of 5% encourage saving, when inflation is 5% in the UK

Question

why interest rates of 5% encourage saving, when inflation is 5% in the UK

In: Economics

Answer 1

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.