What Is The Prime Rate In South Africa? And How Do I Calculate It
The prime interest rate in South Africa is the rate of interest that banks charge their most prestigious customers. In other words, this is the rate that financial institutions will charge the biggest and best savers for a deposit account. Frequently called the official or benchmark rate, the prime lending rate or APRA rate (the acronym for Adjustable Reference Rate) refers to a fixed interest rate that banks use as a base for all other loan and savings rates. Any fees or penalties you are charged will be added to this base figure so lenders can receive uniform pricing from one another. In general, the higher the prime lending rate, the higher your savings will be worth if you were to sell them today. Today, we’ll take a look at what factors banks take into account when calculating their prime lending rates and how you can estimate what your rate is likely to be.
What Factors Influence The Prime Lending Rate?
Several factors affect the prime lending rate set by banks. While these factors are not set in stone, they tend to change slowly, and banks tend to respond to these changes by adjusting their rates. Some of the most critical factors affecting the prime lending rate are economic growth, the state of the local and the global economies, inflation, and the cost of borrowing.
Economic Growth
- The overall health of the economy will influence the prime lending rate. If a country is growing rapidly, this will raise demand for goods and services and thus increase prices as well. As a result, the general level of inflation will also increase. This will be reflected in the interest rates that banks charge with an increased risk of bankruptcy.
The State of the Local and The Global Economies
- By extension, the state of the local and global economies will affect the prime lending rate. If a country is experiencing high levels of inflation, the value of the local and international currencies will also be affected. This will change the value of all goods and services in terms of what you would need to pay for them to maintain the same standard of living. In other words, it will change the cost of borrowing.
The Inflation Rate
- The cost of borrowing is also affected by the current level of inflation. This means that the interest rates on your savings will also increase if inflation is rising. Banks take account of the current inflation rate when setting the prime lending rate. This affects your savings and how much you will be able to borrow from your savings.
The Cost of Borrowing
- The cost of borrowing is the final factor that affects the prime lending rate. This includes the interest rate charged on the loan and any fees or charges added.
How to Calculate Your Own Prime Lending Rate
Before you can begin calculating your prime lending rate, you must first determine your current account rate. This would help you to estimate what your savings will be worth if you were to sell them to a bank now.
To do this, take a look at your current account balance. If you have a standard savings account or a passbook account, you will probably see a figure like R1,00 or R1,50 per month. This is the interest that the bank is charging.
You will see the rate printed on the account details if you have a higher-interest current account. Keep in mind that this will be the bank’s rate for the biggest savers.
Should You Apply for a Higher Prime Lending Rate Account?
If you can apply for a higher savings account, this might be a good idea. This would allow you to move your money to a higher-interest account and take advantage of the higher prime lending rate.
Remember that you must open an account with a higher interest rate. To do this, try to find an account with a higher rate than your standard account. For example, if you have an R1,50 per month account, try to apply for a bill that has a higher rate.
Should You Keep Your Savings in the Prime Lending Account?
The final question we need to consider is whether you should keep your savings in the prime lending rate account. This will depend entirely on what you want to do with your money. Some people prefer to keep their money in a high-interest account, while others will try to take advantage of the higher prime rate and move their money to a higher-interest savings account.
Conclusion
In South Africa, the prime interest rate is the official or benchmark interest rate banks use as the base for all other loan and savings rates.
The rate of interest banks charge their most prestigious customers for a deposit account is the prime lending rate. The higher the rate, the more you will earn if you keep your savings in this account.
