How will your life change in a 'world with interest rates'? A discussion on deposits, loans, and debt [Takomi & Takosuke's Money Course]

This is Takomi. Recently, I’ve been hearing the word “interest rate” a lot in the news. For a long time, “low interest rates” were the norm in Japan, but it is gradually changing into a “world with interest rates.”

However, I think many people are wondering, “What does rising interest rates actually have to do with my life?” Today, I will explain in the simplest way possible how our lives will change when interest rates rise.

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✅ First of all, who does interest rates affect?

Takosuke: Senior, I hear about interest rates rising in the news a lot, but honestly, I don’t really get it.

Takomi: I understand. But you see, interest rates affect both “people who borrow money” and “people who deposit money.” So, it relates to almost everyone.

Broadly speaking, an interest rate is the “commission rate for lending and borrowing money.” When this goes up or down, it affects

It affects both of these in opposite directions. Let’s look at them one by one.

✅ Deposits: When interest rates rise, it’s “a little bit happy”

First, the good news. When interest rates rise, people who have money deposited in banks benefit.

Until now, interest rates on bank deposits have been close to zero, and the state of “not increasing at all even if you deposit it” has continued. But if interest rates rise, the interest earned on deposits will also increase.

Takosuke: Oh, so rising interest rates is good news for people who are saving money.

However, there is one thing to be careful about. When interest rates rise, prices (the cost of goods) are often rising as well. Even if interest increases, if things become more expensive by that amount, the real value may decrease. So, it’s worth remembering that you can’t say “higher deposit interest rates = completely profitable.”

✅ Loans and Debt: When interest rates rise, ‘the burden increases’

Next, the opposite is true. When interest rates rise, the burden on those who have borrowed money increases.

• Repayment amounts for housing loans (variable rate) may increase

• Interest on car loans and card loans will increase

• And—the burden of revolving payments and cash advances will also become heavier

Actually, I (the person behind the scenes) have experienced suffering from high interest rates due to revolving payments in the past. Because I took interest rates lightly, the principal didn’t decrease even though I paid every month, and the debt gradually swelled. I have realized firsthand that while interest rates can be a small force if you make them your ally, they can really weigh you down if you make them your enemy.

Takomi: In a phase where interest rates are rising, it becomes very important to ‘reduce debt as much as possible’.

✅ What we should do in a ‘world with interest rates’

The basics of protecting your life in an era of rising interest rates are simple.

• Reduce debt as quickly as possible: High-interest debt such as revolving payments and card loans should be the top priority. The higher the interest rate, the greater the loss from leaving it alone

• Check the terms of variable-rate loans: If you have a housing loan or similar with a variable interest rate, understand how your repayment amount could change

• Check your deposit interest rates occasionally: Interest rates vary by bank. Try comparing banks with better conditions, such as online banks

• Approach investments with a perspective of ‘getting along well with interest rates’: When interest rates rise, the investment environment also changes. Don’t panic, and stick to the basics of long-term, diversified investing

Takosuke: Defense is ‘reducing debt,’ and offense is ‘reviewing deposits and investments.’ When interest rates move, it’s time to check your finances.

✅ One step you can take starting tomorrow

• Check the interest rate on your current debt (especially revolving payments and card loans)

• If your housing loan has a variable interest rate, review your repayment terms once

• Find out the interest rate of your own deposit account and compare it with other banks

• Look at interest rate news from the perspective of ‘how it affects my life’

✅ Summary: What Takomi wants to convey

• Interest rates affect both ‘savers’ and ‘borrowers’ in opposite ways

• When interest rates rise, deposits become more advantageous, but the burden of loans and debt increases

• Especially for high-interest debt (revolving credit, card loans), the golden rule during a period of rising interest rates is to pay it off quickly

• Defense is ‘reducing debt,’ offense is ‘reviewing deposits and investments’

• When interest rates move, it is the perfect chance to check your own finances

*Interest rate trends and the terms for various loans and deposits change constantly. Please check the latest information from financial institutions or public agencies for specific figures and the most current situation.

Next time, we will bring you more ‘money tips that pay off just by knowing them.’ Please follow us and stay tuned.

#InterestRates #MoneyStudy #Mortgage #Deposits #HouseholdBudgetManagement