#725 [Series] Money Ruler Series Vol. 2: How Interest Rates Are Changing Our Daily Lives

*This article is a reconstruction of Regular Broadcast #1451 (broadcast on October 20, 2026).

Hello, this is Yu-Papa ☺️

Today, I would like to present an episode titled “Series: Money Ruler, Volume 2: How Interest Rates Are Changing Our Daily Lives.”

Last time, we talked about nominal and real values.
In today’s second installment, I will talk about interest rates.

Megabanks raise ordinary deposit interest rates to 0.5% per year

Recently, some of you may have received a notice from your bank saying, “We are raising the interest rate on ordinary deposits.”
The three megabanks—Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho—have announced that they will raise the interest rate on ordinary deposits to 0.5% per year starting November 2.

Until a few years ago, the deposit interest rate at megabanks was 0.001%.
Even if you deposited 1 million yen for a year, the interest was only 10 yen. That is the amount of a single ATM fee, which disappears as soon as you withdraw it.
Now that it has become 0.5%, you can get about 5,000 yen in interest per year on 1 million yen, or about 4,000 yen after taxes are deducted.
That is a 500-fold increase.

You might feel that we have finally entered an era where money grows even in savings accounts.
But is that really true?
Today, I will organize how the return of interest rates changes the relationship between savings, debt, and investment.

Interest is the “rental fee for money”

The term I want you to remember today is “interest rate.”
It is easier to understand if you think of interest as a rental fee for money.
If you rent a car, you pay a rental fee; if you rent a room, you pay rent.
Similarly, people who borrow money pay a rental fee to the person who lent it to them.
This is the interest rate.
When we deposit money in a bank, we are actually lending money to the bank, and that rental fee is the interest on our deposit.
Conversely, when we take out a mortgage, we are borrowing money from the bank, so we pay the bank a rental fee, which is the loan interest rate.

In other words, when interest rates rise, the lender benefits a little, and the borrower’s burden increases.
Even with the same news that “interest rates have risen,” it can be good news or bad news depending on your position.

Why has Japan had no interest rates for so long?

So, why has Japan had no interest rates for so long?
Roughly speaking, it is because the Bank of Japan, the central bank, has intentionally kept interest rates low to support the economy.
If the rental fee for money is cheap, it becomes easier for companies to borrow money to build factories, and easier for households to take out mortgages.
That was the attempt to keep the economy moving, but this period lasted for an incredibly long time.
They even used a mechanism called negative interest rates, where you were actually charged a fee for depositing money.

That has changed significantly in the last few years.
The Bank of Japan ended negative interest rates in 2024 and has been raising interest rates little by little.
In September of this year, 2026, they raised the policy interest rate to 1.25%.
1.25% is said to be the highest level in about 30 years.
For those of us in our 30s and 40s, this is the first time we have experienced a “Japan with interest rates” since we entered the workforce.

Does money grow in savings? Looking at it in nominal and real terms

Let’s return to the initial question.
The interest rate on ordinary deposits has become 0.5%, and we have entered an era where money grows in savings.
Is this true?
This is where the ruler from last time comes in handy.

In nominal terms, it is certainly increasing.
1 million yen will become 1,004,000 yen in one year.
So, what about in real terms?
Current prices are rising at a pace of around 2% per year.
Consumer prices in August 2026 were up 1.9% compared to the previous year.
In other words, the deposit interest rate is 0.5% per year, and the price increase is about 2% per year.
Even if the amount of money increases by 0.5%, the purchasing power of that money is calculated to have decreased by more than 1%.
Even though there is interest, the savings themselves are still losing value.
This is the most important point today.

Compared to the period when interest rates were almost zero and prices were rising by 3% per year, the disadvantage of savings has decreased.
It is more accurate to understand the current situation as the disadvantage of savings having narrowed slightly, rather than savings having become advantageous.

An era where banks compete for deposits

There is one more change happening now that interest rates have returned.
Banks have started to compete with each other to attract deposits from customers.

In the era of zero interest rates, deposits were not particularly welcome for banks because they could earn almost no interest by lending them out or investing them.
But now, banks can earn quite a bit by lending or investing the deposits they collect.
There is now a benefit to collecting deposits.
In fact, at the same time that mega-banks are raising rates to 0.5%, online banks are also raising theirs one after another.
Some places are even offering savings account interest rates exceeding 1% under certain conditions, so competition is emerging.

Until now, no matter which bank you deposited your money in, the interest was almost zero, and there was no difference.
From now on, we are entering an era where interest rates will vary depending on where you keep your money.
In a world with interest rates, choosing where to keep your money starts to have a little bit of meaning.

Government bond yields are near 3%. Comparisons with stocks begin

When interest rates rise, it changes not only deposits but also how we view where to keep our money.
One example is government bonds.
Government bonds are a mechanism where you lend money to the government and receive interest in return.
The yield on Japan’s 10-year government bonds, which is the rental fee for lending money to the government for 10 years, rose to 2.95% at the end of August 2026.
This is also the highest interest rate level in about 30 years. It has become possible to get a yield of nearly 3% per year in a place with almost no risk.

This is also a significant change for stock investment.
In the era of zero interest rates, since nothing grew by keeping money in deposits, the idea that it was better to put it into stocks was almost automatically established.
But in a world with interest rates, the benchmark is no longer zero, and stocks are viewed through the lens of whether they can provide a sufficient return compared to bond interest rates.
It’s not that stocks are bad, but the idea that ‘you should just put everything into investments’ was based on the premise of zero interest rates.
Now that this premise has changed, it is worth rethinking it for yourself.

That said, even if government bonds are at 2.95%, inflation is at 2%.
The difference is only 0.95%.
If you keep it in a deposit, you are still losing.
If you put it into bonds, you will have a gain of about 0.95% per year, but if inflation returns to the 3% range, you will be breaking even or slightly losing.
With no certainty about whether prices will stabilize, it cannot yet be guaranteed that your money will not decrease if you lock it into 10-year government bonds.

The impact on borrowers comes with a ‘time lag’

Up to this point, we have been talking about the lending side, that is, deposits and investments.
The impact on the borrowing side does not arrive the moment the news breaks.
It arrives with a time lag.

For example, variable interest rates on home loans.
Even if the Bank of Japan raises interest rates in September, it will be a while before banks review their home loan interest rates.
In the case of MUFG Bank, the review of the variable interest rate benchmark is in December.
And for many existing users, the new interest rates will not be reflected until 2027.

Furthermore, Japanese variable-rate home loans often have mechanisms that do not immediately increase monthly repayments, so even if you hear ‘interest rate hike’ on the news, it feels like nothing has happened to your household budget.
But in reality, the burden is gradually accumulating beneath the surface.
We will cover this topic in detail in the next home loan episode.

Rather than trying to guess interest rates, know that the ‘rules have changed’

Honestly, no one knows if interest rates will continue to rise like this.
In the market, there is a view that there will be another rate hike within the year.
If the economy weakens or there are political circumstances, the pace could slow down, and if inflation settles down, we could see a situation where the erosion of deposits almost disappears.
I think it is dangerous to assume that interest rates will continue to rise rapidly or to think that they will immediately return to zero.
I believe that interest rates are here to stay from now on.

The important thing is not to guess interest rates, but to understand the prerequisite rule that the rules of money change depending on whether there are interest rates or not.
In capitalism, those who hack the rules win.
If you don’t know those rules, you can’t win the game.

Summary

Let’s summarize today’s talk.
Interest is the rental fee for money; it is income for the lender and a burden for the borrower.
For the first time in about 30 years, Japan has returned to a world where there is a proper rental fee.
However, even if deposit interest rates rise, the rise in prices is still faster, so even if it increases in nominal terms, it is still decreasing in real terms.
It is accurate to think that it hasn’t become advantageous, but rather that the disadvantageous part has shrunk slightly.
And in a world with interest rates, deposits, government bonds, stocks, and home loans will all be compared based on this rental fee, that is, the interest rate.
Are you currently on the lending side or the borrowing side with your money? How much are interest rates moving for each?
If you look at your money from both perspectives once, I think the way you see interest rate news will change.

Next time, we will talk about home loans and house prices.
We will look at how rent and house prices will change as an extension of this interest rate discussion.

Yes, so today we presented this under the title ‘Series: The Money Yardstick Volume 2: How Interest Rates Are Changing Our Daily Lives’.

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Thank you for reading to the end.
See you in the next article.

See you later~♪