Understanding interest rates can put more money in your pocket


Say the words “interest rates” and many will give you a glazed look. But it’s worth your while to understand what interest rates are and how they work, because when you save, these rates help determine how much you end up with!

Over the course of the year, you may have heard in the news how interest rates have dropped or risen – but do you understand what this means for your pocket, and how the actions you take could save – or cost – you money? If not, help is at hand! Here’s a quick guide to understanding and maximising on your interest rates.

What are interest rates?

An interest rate is a percentage charged or paid on the total amount you borrow or save.

  • If you're borrowing money, the interest rate is the cost associated with borrowing money – so it increases the total amount that you owe.
  • If you save or invest your money in an account that offers you interest on your savings, the interest rate is the amount that your savings will earn over the investment period – so it increases the total savings balance.

Even a small change in interest rates can have a big impact on how much you owe or earn.

  • Lower interest rates are good for borrowing: When you are borrowing money – for example when you use a credit card or when you take out a car or home loan – you want a lower interest rate because this lowers the total amount that you will pay back.
  • Higher interest rates are good for saving: If you’re saving – for example by investing your money – you want a higher interest rate because you gain that extra percentage of interest and increase the total amount that you have.
What is compound interest?

When the amounts that are earned through interest are added to the initial amount, this new amount earns interest as well. When this is repeated month after month, the entire sum grows exponentially! This process is known as compounding.

Compound interest can work against you if you’re borrowing, and for you if you’re saving: it either adds to the debt you have – or makes the money you save grow faster. This is why it’s smart to do your research and see how you can take advantage of low interest rates when borrowing, and high interests rates when saving.

Are interest rates in your control? 

One of the main reasons people don’t pay specific attention to interest rates is because it seems like all increases or decreases in interest rates are out of our control. But that isn’t necessarily the case. Discovery Bank’s Vitality Money behaviour-change programme is taking the lead by letting their banking clients benefit from personalised interest rates.

Discovery Bank is the only bank in South Africa where you will qualify for Dynamic Interest Rates that lets you receive cashback on interest that was paid, or receiving a boost on interest earned. More specifically, you can pay up to 6.75% less on your credit, plus earn up to 4.75% interest on your demand savings and you even get up to 3.75% on the money in your everyday accounts.

How to work Dynamic Interest Rates in your favour 

Discovery Bank clients who engage with Vitality Money can lower their borrowing cost. They can also increase the cash earned on savings and the positive balances in their transaction or credit card accounts. Remember, these boosts are in addition to the above-market interest rates that Discovery Bank offers as a standard.

How? It’s simple. There are five key financial behaviours that determine how financially strong you are. By improving them, you can earn Vitality Money points. The total number of Vitality Money points you earn determines your Vitality Money status, which then determines your rewards and Dynamic Interest Rates. To get started, set up Vitality Money on your Discovery Bank app and complete the Vitality Money Assessment to get rewarded for managing your money well.

Not a Discovery Bank client?

We also have a Vitality Money calculator that is available to everyone on the Discovery website. You can use this tool to see how you are managing the five key financial behaviours – you will even see what your Vitality Money status, rewards and interest rates would be if you join Discovery Bank.

Remember, little differences in the percentage of interest rates can have long-lasting implications. So before you borrow money or start saving, it’s worth researching where you’ll get the biggest benefits in the long run. Now that you understand the implications, let it prompt you to make one small change to manage your money better today!

This article is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser.

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