Interest rates are a big deal, especially when you’re trying to pay off a mortgage or student loan. And it’s crucial to understand what the prime interest rate is in South Africa because it will determine how much interest you pay on your debts—but that’s not all. The prime interest rate is also related to other things like credit cards and personal loans, so knowing about this number can help you make better financial decisions and plan for the future.
Banks want to make money from the interest they charge, so it’s normal for them to set their prime rate higher than the average. If your bank’s prime is at 9% and the average is 6%, that means they’re trying to earn more money off of you.
In other words: the higher your APY (Annual Percentage Yield) or APR (Annual Percentage Rate), the more profitable your account will be for your bank.
The prime rate is not necessarily a fixed rate.
The bank can change the prime interest rate depending on the state of the economy and its own financial situation.
Banks are in business to make a profit.
If a bank makes a profit, it means that it has earned more money than it spent. It is in the business of making a profit to cover its costs and make sure that its owners are paid dividends. In order to make profits, banks charge interest on loans and investments made by customers. Banks also make money from the difference in buying and selling currencies, which is called foreign exchange trading.
When you have an account at the bank, you earn interest on your deposits and pay interest for borrowing money (whether this is through credit cards or overdrafts). The higher the prime rate is set by Reserve Bank South Africa (RBA), the more will be charged for borrowing from banks using their facilities such as credit cards or car loans which mean higher returns for them but lower profits for consumers who may end up paying too much for these services.
The bank must cover personnel and other costs.
These include salaries for employees, infrastructure costs (such as the cost of renting or owning a building), IT infrastructure maintenance costs, marketing expenses and other operational costs such as paying staff members who sit in branches to assist customers with their banking needs.
You may be perceived as a high-risk customer.
If you have a bad credit history, or if you’re perceived as a high-risk customer, your prime interest rate may be higher than someone with a good credit history and/or better income.
If your interest rate is higher than the prime rate, it’s because your bank wants to earn money from you.
The bank has to cover its own costs. Banks are businesses, and they have to make a profit just like any other business does. This means that banks have to cover their personnel costs (the salaries of employees), as well as all the other costs that go into running a business: electricity, water, etc.
Banks also need to cover unexpected risks—like if someone comes in and steals money from them or sues them—with enough money so they don’t go bankrupt. To do this, they need over one source of income! If a bank is only earning interest on loans made out by people who borrowed money from it in the first place (e.g., you), then if something happens where people stop borrowing money (like because there’s not enough demand for loans), then suddenly all those loans become worthless since there’s nothing left behind once everyone defaults on payments due.
