The interest rate has been increasing but what does this mean for you? PHOTO: CFA Institute

What are interest rates and how do they affect you?

Interest rates have gone up several times in the last few months in the country but what does all of this actually mean?


The interest rate has been increasing but what does this mean for you? PHOTO: CFA Institute

The South African Reserve Bank (SARB) again increased the repo rate recently, which left borrowers shaken and concerned due to the increased interest rate.

In the past few months, the interest rate has gone up several times and according to an expert, it will keep rising for the foreseeable future.

But what are interest rates, why do they rise and how do they affect you?


This is made up of two concepts. The first is the Repo Rate. This is the rate at which banks can borrow money from the South African Reserve Bank. The repo rate was increased to 6.25% recently.

The second concept is the Prime Rate, which is the interest rate which customers on credit are charged by banks for products such as home loans. The current prime rate is 9.75%.


FNB Integrated Advice Product Head Ester Ochse explains that interest rates are to manage inflation.

“Inflation is simply how much a weighted basket of goods and services, such as groceries and petrol, goes up from one period to another. The changes are expressed in percentages, and since South Africa’s inflation target is between 3% and 6%, the Reserve Bank’s mandate is to maintain this target range.”

Ester Ochse

South Africa’s inflation rate is currently at 7.6%.  This high inflation rate is due to several issues, with the main one being the rise in oil and agriculture commodity prices. This means that it costs more to transport goods and produce necessities such as food, said Ochse.


The interest rate is increasing and it seems it won’t slow down for the foreseeable future, meaning there will be less to spend. PHOTO:

In simple terms, if you have credit and the interest rate goes up, your monthly repayment will also go up. For example, since the current rate has gone up by 0.75%, it means a R1 million bond repayment will cost about R485 more per month. Subsequently, this limits your spending as goods cost more.

ALSO READ: In debt? You are now screwed due to the new repo rate


Ocshe has given tips to manage the strain of the rising interest rate.

  1. Keep track of what you spend and cut back on spending you don’t have to do.
  2. Move your debit order date as close as possible to the date you get paid. This way, you would have paid your debit orders and not have to worry about keeping money aside.
  3. Use loyalty programmes like eBucks to free up cash and supplement another necessary spending such as groceries, toiletries and fuel.
  4. Find ways of saving money on food since food prices have recently gone up. Buy non-perishables once a month and create a weekly menu from the pantry.

“The good thing about the interest rate cycle is that if you have savings, such as emergency savings or you live off the interest from cash investments, the interest on these savings should also go up. This means that more interest will be earned, so more interest will be paid every month,” said Ochse.