Yield, Interest Rates & the Cost of Money
Where rates come from, how they reach your mortgage and your savings, and what to compare.
One rate, many prices
Central bank policy sets a short-term benchmark. Everything else — mortgages, card rates, deposit rates, business loans — is that benchmark plus a spread reflecting term, credit risk and the lender's margin. When people say rates rose, they mean the benchmark moved and the spreads adjusted around it.
The yield curve is a forecast, not a rule
The relationship between rates and term reflects what markets expect. When short-term rates exceed long-term ones, locking a long fixed rate stops being obviously sensible, and multi-year deposits stop being obviously better than short ones. The curve is information, not instruction.
Compare after tax and after inflation
A five percent deposit rate with three percent inflation and a twenty-four percent marginal tax rate is barely positive in real terms. Nominal comparisons flatter cash and understate the cost of debt. The only comparison that means anything is after tax and after inflation.
APR and yield to maturity exist to make things comparable
Headline rates hide fees, compounding frequency and term. APR folds fees into borrowing costs; yield to maturity does the same for bonds bought at a discount or premium. Comparing anything on the headline number instead is how people end up with the more expensive option.
Rate changes move slowly through the system
Deposit rates typically rise more slowly than borrowing rates and fall faster. That asymmetry is where a large part of lender margin lives, and it is the reason shopping deposits and refinancing debt are worth doing on a schedule rather than on instinct.
Common questions
Should I lock a rate or float?
Locking buys certainty at a small cost. It is worth more when your budget is tight or the exposure is large relative to your income.
Why did my savings rate not rise with the benchmark?
Deposit pricing is competitive rather than automatic. Institutions raise it when they need deposits, which is why shopping matters.