Interest rates play a crucial role in determining how to allocate scarce resources. When they are low, it is more profitable to borrow money because borrowers believe that money has more value now than in the future. They might invest it in ventures that they expect to return a profit, above and beyond the upfront costs and interest accumulated. Higher interest rates incentivise saving money, causing investments to stagnate while the savers believe the money is worth more in the future than now.

Banks mediate investments in companies that will benefit the economy and return a profit - a person who saves in a bank and accumulates interest on the savings functions as a creditor. The bank loans the money saved to a borrower who will pay back interest on the borrowing. As aforementioned, a borrower sacrifices future income for current needs while savers do the opposite.