Cheap Money

AAA

DEFINITION of 'Cheap Money'

A loan or credit with a low interest rate, or the setting of low interest rates by a central bank like the Federal Reserve. Cheap money is good for borrowers, but bad for investors, who will see the same low interest rates on investments like savings accounts, money market funds, CDs and bonds. Cheap money can have detrimental economic consequences as borrowers take on excessive leverage.

INVESTOPEDIA EXPLAINS 'Cheap Money'

When money is cheap, it is a good time for borrowers to take on new debt or consolidate existing debts. However, borrowing more than one can afford to repay was one of the primary catalysts of the 2008 recession.


Here are a few examples of cheap money:


-A credit card with a 0% introductory APR for 12 months


-A 30-year fixed-rate mortgage at 4% interest


-An auto loan at 0.5% interest

RELATED TERMS
  1. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  3. Easy Money

    In the most literal sense, money that is easily acquired. Academically ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  6. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
RELATED FAQS
  1. What are the main factors that drive share prices in the utilities sector?

    Two of the main drivers in share prices for companies in the utility sector are interest rates and the amount of dividends ... Read Full Answer >>
  2. What is the opposite of a "dove"?

    A dove is an economic policy adviser who favors maintaining low interest rates in hopes of stimulating the economy, while ... Read Full Answer >>
  3. Why is term structure theory of importance to economists?

    The term structure theory, also known as the term structure of interest rates, is important to economists because it lets ... Read Full Answer >>
  4. How does the risk of investing in the utilities sector compare to the broader market?

    The risk of investing in the utilities sector is less than the broader market. The two main reasons are the high dividends ... Read Full Answer >>
  5. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  6. What does a climbing interest rate risk signify about the economy?

    Climbing interest rate risk typically signifies the economy is strong with considerable financial activity. When an economy ... Read Full Answer >>
Related Articles
  1. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  2. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  3. Investing Basics

    What Investors Should Know About Interest Rates

    Understanding interest rates helps you answer the fundamental question of where to put your money.
  4. Retirement

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating your student loans offers convenience, but there are drawbacks.
  5. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  6. Personal Finance

    Insurance Companies Vs. Banks: Separate And Not Equal

    Insurance companies and banks are both financial intermediaries. However, they don't always face the same risks and are regulated by different authorities.
  7. Trading Systems & Software

    The Fast-Paced World of Libor & Fixed Income Arbitrage

    LIBOR is an essential part of implementing the swap spread arbitrage strategy for fixed income arbitrage. Here is a step-by-step explanation of how it works.
  8. Economics

    How Interest Rates Affect Private Equity

    With an impending increase in US interest rates and lower - even negative rates - elsewhere in Europe and Japan, we assess the impact on private equity.
  9. Economics

    Is 2016 The Year For An Interest Rate Hike?

    The debate ultimately centers on the strength of the economy.
  10. Personal Finance

    Financial Tips For People Who Hate Finance

    For people who hate financial planning, there's usually one big problem – which you can fix. Do it now.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!