In the past week, the Bank of Israel has raised the interest rate by half a percent to 1.25%.
This is the third increase in recent months.
The change in the trend in the interest rate on the shekel affects every one of us in Israel - individuals and businesses large and small.
So what exactly is interest?
This is the price of money.
If we take a loan, we pay an additional amount in the amount and at predetermined times when receiving the loan - which is the interest.
This is of course further to the need to repay the amount we took, which is the loan principal.
On the other hand, if we have available money and we deposit it in the bank, we are entitled to the payment of an additional amount on the money we deposited, also on pre-determined terms and dates, and this is also interest.
What is the direct effect of raising interest rates on households in Israel?
One direction of the effect is the increase in the price of loans, which has a negative effect on households.
The most significant loan for households in Israel is the mortgage.
The mortgages are partly linked to the prime interest rate, which is the Bank of Israel interest rate plus 1.5%, and some are linked to the consumer price index - which measures the change in the cost of a basket of products and services consumed by a group of consumers and is published once a month.
This means an increase in the monthly repayments and the total repayments over the life of the mortgage.
All other floating rate loans are also expected to become more expensive.
An example of this is the overdraft, which is one of the most expensive loans.
More than 40% of Israelis have been in the red for at least one quarter in the past year and were unaware that this is the most expensive loan.
In addition, CPI-linked loans will also become more expensive as a result of inflation.
The increase in interest rates is an opportunity to examine the household loan portfolio, examine whether it is managed optimally, and make the necessary changes such as replacing a loan overdraft - a loan from a bank, a loan from the workplace or a loan against a study fund at a lower cost, and more.
Changes in interest rates and inflation call for households to examine both their loan portfolios and investment portfolios.
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