Why do interest rates affect stocks?

Short answer

When interest rates are high, safe savings pay more, so investors take less risk in stocks. When rates fall, stocks usually look more attractive.

What happened

Bond yields and stock prices often move in opposite directions on news about future interest rates.

Why it happened

Interest rates set the 'price of money'. They affect what companies pay to borrow, what consumers pay for mortgages, and how much investors earn on risk-free savings.

Why investors care

Interest rates are the single biggest force on stock prices over time. Every market move starts with 'what are rates doing?'

How it affects ordinary people

Lower rates usually mean cheaper mortgages and loans but lower savings returns. Higher rates do the opposite.

FAQ

Who sets interest rates?

Central banks — the Federal Reserve in the US, the ECB in Europe, the Bank of England in the UK.