Understand Why Cost of Borrowing is Higher than Returns for Savers

It is often asked why interest rates are always higher for borrowers than for savers. This article explains some of the factors used to set interest rates.

In simplistic terms a deposit taking and lending body such as a bank, building society or savings and loan company takes in money from savers and pays them interest for the use of that money. The bank then lends that money to a borrower and charges them interest on the loan. The lending company also needs money to administer the deposits and the loan. They also need to make a profit.

So the profit and administration costs come out of the gap between the interest charged to borrowers and that paid out to savers.

Even a mathematician can be grabbed by the psychology of gambling and make losses on stock markets despite maths telling him that prices are unpredictable.

He Figured the Odds and They Still Beat Him

Run Faster and Faster Just to Stand Still.

Anyone who has been in business for more than a few years will be well aware that the pace of change has been accelerating rapidly. Indeed, the responsiveness of a business may be the key element of its competitive position. It affects all aspects of the business from new product development to order fulfilment: if competitors are faster then any competitive advantage is steadily being eroded. All businesses need to run hard simply to stand still.