A rise in interest rates can be painful if you have several loans or other debt. The cost of borrowing money becomes more expensive, so you will have to pay more towards your credit card, personal loan, car loan, home loan or any other debt with a variable interest rate. You end up with less disposable income.  

On the other hand, an increase in interest rates can be good for your investments, because it increases the monthly return on them.

What is an interest rate?  

Interest is the fee charged when lending money. If you borrow from a lender, you are charged a percentage of the amount you borrowed every month as interest. And when you make an investment, you are ‘lending’ your money, so you are paid a percentage of your investment every month in interest. This percentage is the interest rate. It is usually quoted as an annual rate.

Lenders and investment firms set interest rates according to the repo rate, which is set by the South African Reserve Bank (SARB) and reviewed every 2 months. SARB adjusts the repo rate to fight inflation according to government monetary policy. If SARB decides that inflation is too high, it will raise the repo rate – which has a knock-on effect on all other interest rates – to discourage spending and encourage saving.  

Nominal versus real interest rates

Interest rates can be shown in both nominal and real numbers. Banks offer a nominal interest rate for loans and investments. This rate does not take inflation into account. If you borrow money or invest money, the nominal interest rate is the amount of interest you are charged or paid. 

Choosing the right investment matters

Nedbank offers several types of investment accounts that can help you reach your financial goals over the short, medium and long term. Open the accounts you need easily via Online Banking or the Money app or speak to a Nedbank adviser.