How do interest rates generally affect borrowing and saving behaviors?

Low interest rates encourage borrowing because they reduce the cost of loans. When interest rates are low, the amount that borrowers pay in interest on loans decreases, making it more affordable for individuals and businesses to take on debt. This can lead to an increase in consumer spending and investment as people feel more confident to borrow for big purchases like homes or cars, or for business expansion.

At the same time, low interest rates can make saving less attractive since the returns on savings accounts and fixed-income investments tend to be lower. Consequently, people may prefer to spend or invest their money rather than save it in a low-return environment.

Understanding the relationship between interest rates and borrowing can help individuals make informed financial decisions, recognizing that lower rates can stimulate economic activity by encouraging more borrowing.