The Truth About Interest Rates in South Africa

Published by The National Debt Review Center on

The Truth About Interest Rates in South Africa

By The National Debt Review Center

There are many factors that contribute to the interest rate in South Africa which may not be apparent from looking at an advertised rate. Let’s explore some of these factors and see how they impact your bottom line.

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Interest Rates In South Africa

What is Interest?

Interest is the price of money, and it is determined by the supply and demand for loans in the market. The rate at which banks lend money to one another overnight is called the interbank lending rate. This rate forms the basis for all other interest rates in South Africa.

The interbank lending rate is influenced by many factors, including decisions made by the South African Reserve Bank (SARB), economic growth and inflation. In South Africa, interest rates are usually quoted as the prime interest rate. The prime interest rate is the average of the three major banks’ lending rates.

Banks use different methods to calculate interest, but most use the reducing balance method. This means that Interest is calculated on the outstanding loan amount, not on the original loan amount. For example, if you have a R100 000 loan and you pay R10 000 in interest every year, at the end of year two you will only be paying interest on R90 000.

Types of Interest Rates

There are two main types of interest rates in South Africa: the prime rate and the repo rate. The prime rate is the interest rate charged by banks to their most creditworthy customers. The repo rate is the interest rate at which the South African Reserve Bank lends money to commercial banks.

The prime rate is currently 10.25% per annum. The repo rate is 6.37% per annum.

Most home loans in South Africa are linked to the prime rate, which means that your monthly repayments will increase if the prime rate goes up, and decrease if the prime rate decreases. However, some home loans are linked to the repo rate, which means that your monthly repayments will decrease if the repo rate goes down, and increase if the repo goes up.

If you are considering taking out a loan, it is important to compare different interest rates and see what would work best for you.

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The Truth About Interest Rates in South Africa

Interest rates in South Africa are at an all-time high. The Reserve Bank has raised the repo rate by 0.25% to 9.75%. This interest rate hike follows a succession of interest rate cuts in 2020, which brought the interest rate to the lowest it had been in decades. The repo rate is the rate at which the Reserve Bank lends money to commercial banks.

This increase will affect home loans, credit cards, and other forms of borrowing. It will also have an impact on investment returns. For example, if you have a R1 million investment portfolio, a 1% increase in interest rates will reduce your return by R10 000.

The truth is that interest rates are not likely to come down any time soon. Inflation is currently at 4%, which is above the Reserve Bank’s target of 3%. This means that the cost of living is rising faster than wages, which erodes household disposable income.

Higher interest rates also make it more expensive for businesses to borrow money for expansion or working capital. This could lead to slower economic growth and higher unemployment.

So what can you do to protect yourself from rising interest rates? One option is to invest in fixed-income investments such as bonds or government securities. These investments offer relatively higher yields than cash or term deposits, but there is still some risk involved.

Another option is to diversify your investment portfolio across different asset classes such as shares, property, and cash. This will help reduce the overall risk of your portfolio.

How Are Interest Rates Determined in South Africa?

There are a number of factors that contribute to how interest rates are determined in South Africa. The South African Reserve Bank is responsible for setting the repo rate, which is the rate at which banks borrow money from the central bank. This rate influences the prime lending rate, which is the rate at which banks lend money to their best customers. Other factors that can influence interest rates include inflation, the country’s political stability, and global economic conditions.

Pros and Cons of Interest Rate Changes

When it comes to interest rates, there are pros and cons to any change:


  • Lower monthly payments: If you have a variable rate loan, a decrease in interest rates will lower your monthly payments.
  • Pay off debt faster: A lower interest rate means you can pay off your debt faster since more of your payment will go towards the principal balance.
  • Save money on interest: Obviously, paying less in interest is a good thing! A lower interest rate means you’ll save money over the life of your loan.


  • Less flexibility: A fixed interest rate means you won’t be able to take advantage of future decreases in rates. You may want to consider a variable rate loan if you think rates might drop in the future.
  • Higher monthly payments: An increase in interest rates will mean higher monthly payments, so be sure you can afford the new payment before locking in a higher rate. – Increase the total cost of the loan: While you’ll save money in interest with a lower rate, a longer loan term will increase the total cost of the loan.

What is the Minimum Interest Rate for Loans in South Africa?

The minimum interest rate for loans in South Africa is 10.5%. This is the lowest rate that banks can charge for loans, and it applies to both personal and business loans. The 10.5% rate is set by the National Credit Act and is reviewed every year.

Banks are allowed to charge higher interest rates for loans if the borrower agrees to it, but the maximum rate they can charge is 27.5%. This means that if you are looking for a loan with a lower interest rate, you should shop around and compare different offers before agreeing to anything.

Interest rates can have a big impact on your monthly repayments, so it’s important to understand what you’re signing up for before taking out a loan. If you have any questions about interest rates or other aspects of taking out a loan, speak to a financial advisor who can help you make the best decision for your situation.

How does an Interest Rate affect me?

An interest rate is the percentage of an amount of money that you borrow or save that you pay or earn in a year. In South Africa, the interest rates on loans and savings accounts are set by the Reserve Bank.

The Reserve Bank uses the repurchase rate to influence the cost of borrowing and lending in South Africa. When the repurchase, rate goes up, so do interest rates on loans. This means that it will cost you more to borrow money. If you have a loan, your monthly repayments will go up.

If you have savings, higher interest rates mean that you will earn more interest on your money. So, if you are looking to grow your savings, now is a good time to do it!

How do I know if I’m paying a Fair Rate of Interest?

When it comes to interest rates, there is no one-size-fits-all answer. The best way to find out if you’re getting a fair rate is to compare rates from different lenders.

There are a few things to keep in mind when comparing rates:

The advertised rate is not always the rate you’ll actually get. Be sure to ask about any fees or charges that could reduce your interest savings.

Rates can vary based on your credit score, so it’s important to shop around and compare offers from multiple lenders.

Interest rates are just one factor to consider when choosing a lender. Be sure to also compare other terms and conditions, such as repayment periods and penalties for early repayment.


It is clear that interest rates in South Africa are high, but it is also clear that they are not as bad as many people think. With a little bit of planning and knowledge, it is possible to get a good deal on a loan. However, it is important to remember that interest rates can change at any time, so it is always important to stay up to date on the latest information.

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