Whether you’re taking out a mortgage, applying for a student loan, or working out how much interest you’ll receive from your savings account, you’ll find that the term ‘interest rate’ crops up frequently in everyday life.
However, understanding interest rates can prove tricky, particularly if you’re unfamiliar with the term and what it applies to. But it seems that if you’ve ever turned to Google to answer your interest rate-related questions, you’re not alone. Research by personal finance experts Snoop Dow has revealed the most searched questions related to interest rates—some of which receive an average of 2,400 searches per month!
So, to make your life easier, we’re going to run through each one and answer them. Let’s get stuck in!
What Are The Most Googled Questions Relating to Interest Rates?
According to SnoopDow, these are the top 10 questions about interest that people are searching for—and the ever-important answers.
1. Are Interest Rates Going Up?
Interest in the UK were increased by the Bank of England on 22 September 2022, taking the base rate from 1.75% to 2.25%. The interest rate is now set at 3%. Economists predict that the base rate could rise again to around 4.25% by March 2023.
2. What is an Interest Rate?
An interest rate is an additional amount that a lender charges a borrower on top of the loan amount. It is shown as a percentage of the amount loaned (also called the principle). Interest rates are usually noted on an annual basis and, therefore, are referred to as the annual percentage rate (APR).
Alternatively, interest rates on savings accounts refer to the amount you will be paid into your account as a percentage of your savings. The higher the interest amount, the more money you’ll receive into your savings account.
3. What is The Interest Rate on Student Loans?
The interest rate on your student loan will depend on which plan you are on.
The following table shows the interest rates for the different student loan repayment plans:
|Repayment Plan||Interest Rate|
4. How do Interest Rates Affect Inflation?
Interest rates and inflation are closely linked. If interest rates are high, borrowing money is more expensive, which encourages individuals to save. If more people are saving money and not spending on goods and services, prices usually rise slower. Slower price increases also mean a slower rate of inflation.
5. What is The Mortgage Interest Rate?
The official Bank of England Base Rate is 2.25%. Aside from the base rate, there are other variable interest that depend on the type of mortgage you have. If you are on a fixed-rate mortgage, your interest rate will be unaffected by the current base rate.
However, if you are coming to the end of their fixed term could be looking at a remortgage rate of 5%. Furthermore, forecasts predict that the Bank of England’s Base Rate could rise to 6%.
6. Will Savings Interest Rates Go Up in 2022?
More specifically, “Will savings interest rates go up in 2022 UK”. Usually, when the Bank of England raises the base rate, interest on savings accounts follow suit. However, most banks are yet to pass on the previous six base rate rises to savings accounts.
This said, interest rates have been rising upwards since the Bank of England increased the base rate (since last December). As a result of this, the average rate across the easy access market increased to 0.59% in July 2022—from 0.39% in May 2022. It is, however, unlikely that we’ll see a dramatic increase in interest rates as banks don’t usually pass on the full rate rise to savers.
7. How Does Inflation Affect Interest Rates?
As previously mentioned, inflation and interest rates are intrinsically linked—this means when one falls, the other usually rises.
For example, if interest rates decrease, individuals will be encouraged to borrow money. This will then lead to increased spending, and as a result, the economy will grow, and inflation will rise. If the economy grows too rapidly, banks may increase their interest rates to slow spending and control inflation.
8. How High Will Interest Rates go?
The Bank of England’s Base Rate was previously set to top 3.00% early next year. However, that has now changed to 4.25%.
9. How Do You Calculate Interest Rates?
The ninth most searched interest rate-related question is “how to calculate interest rate”. This could be referring to interest on mortgages or interest on savings accounts.
We’ll run you through how you’d work out each one.
Calculate mortgage interest rates
If you want to work out the cost of borrowing money (the interest expense, you can use one of the following:
- Simple interest calculation
- Compound interest calculation
Simple interest can be calculated using the following formula:
Simple interest = Principal x Interest Rate x Term of the Loan
For example, if you have a loan of £1,000 and the interest rate is 5% for four years, your total interest will be as follows: £1,000 x 5% x 4 = £200.
Alternatively, if you need to calculate compound interest, you can use the following formula:
Compound interest = P(1=i)n-PWhere:
- P:Principal amount (the starting balance)
- i:Interest rate
- n:Number of compounding periods for a year
Calculate simple interest in a savings account
If you want to determine how much interest you’ll earn from your savings account, you can use the formula: P x R x N
- P:Principal amount (the starting balance)
- R:Interest rate (usually per year and expressed as a decimal)
- N:Number of time periods (generally one-year time periods)
For example, if you have £10,000 in savings and you earn 1% interest per year, your equation wouldbe:£10,000 x 0.01 x 1 = £100
10. What is The Lowest Interest Rate on Equity Release?
The lowest rate on Equity Release is 6.52% (AER), fixed for life. The highest is 9.54%.