Financial literacy and banking decisions are increasingly common topics in IELTS Writing Task 2. Questions about interest rates, particularly comparing fixed versus variable options, have appeared in recent tests across Asia and the Middle East. Based on analysis of past papers, this topic has appeared approximately 4-5 times in the last two years, suggesting it remains relevant for future tests.
Example Task and Analysis
Some people prefer fixed interest rates for loans while others choose variable rates. Discuss both views and give your own opinion.
This question requires candidates to:
- Compare two different perspectives on interest rate choices
- Explain the reasoning behind each preference
- Present and justify their own position
- Support arguments with relevant examples
Band 8.5 Sample Essay
Money management and loan decisions are crucial aspects of personal finance that significantly impact people’s lives. While some individuals opt for the predictability of fixed interest rates, others prefer the potential benefits of variable rates. This essay will examine both perspectives before presenting my view.
Those who favor fixed interest rates primarily value stability and predictability in their financial planning. With a fixed rate, borrowers know exactly how much they need to pay each month throughout the loan term, making it easier to budget and plan for the future. This certainty is particularly appealing to individuals with stable but limited incomes, such as government employees or retirees. For example, a young family purchasing their first home may choose a fixed-rate mortgage to ensure their housing costs remain constant while they manage other growing expenses like childcare and education.
On the other hand, proponents of variable interest rates are often attracted to the possibility of paying less interest over time. Variable rates typically start lower than fixed rates and may decrease further if market conditions improve. This approach can result in significant savings, especially during periods of declining interest rates. Additionally, some borrowers appreciate the flexibility of variable rates, as they can often refinance or switch loans without incurring heavy penalties. For instance, a business owner might select a variable rate for their commercial loan, knowing they can adapt their strategy based on market conditions and company performance.
In my opinion, the choice between fixed and variable rates should depend on individual circumstances, risk tolerance, and market conditions. For long-term personal loans like mortgages, I believe fixed rates offer valuable peace of mind and protection against potential rate increases. However, for shorter-term loans or when interest rates are expected to decline, variable rates may prove more advantageous. The key is to carefully assess one’s financial situation and future goals before making this important decision.
Band 6.5 Sample Essay
Nowadays, people have different choices when they take loans from banks. Some people like fixed interest rates but others prefer variable rates. I will discuss both sides and give my opinion.
Fixed interest rates are good because they don’t change. When people get loans with fixed rates, they always pay the same amount every month. This is good for planning money and knowing how much to save. For example, if someone borrows money to buy a house, they can easily plan their monthly budget because the payment never changes. Many people feel safe with fixed rates.
But variable rates also have some good points. These rates can go up or down depending on the economy. Sometimes, people pay less money when rates go down. Also, variable rate loans often start with lower rates than fixed ones. This means people can save money at the beginning. For example, business people sometimes choose variable rates because they think rates will go down in the future.
I think both types of rates have their uses. Fixed rates are better for people who want to be sure about their payments and don’t like taking risks. Variable rates might be good for people who understand the economy and can handle changes in their payments. It depends on what kind of person you are and how much risk you can take.
Key Vocabulary
- Interest rate (n) /ˈɪntrəst reɪt/ – the percentage charged for borrowing money
- Fluctuate (v) /ˈflʌktʃueɪt/ – to change continuously and irregularly
- Refinance (v) /ˌriːˈfaɪnæns/ – to replace an existing loan with a new one
- Risk tolerance (n) /rɪsk ˈtɒlərəns/ – the degree of uncertainty an investor can handle
- Predictability (n) /prɪˌdɪktəˈbɪləti/ – the quality of behaving in a way that is expected
- Financial planning (n) /faɪˈnænʃəl ˈplænɪŋ/ – the process of managing money and investments
- Mortgage (n) /ˈmɔːɡɪdʒ/ – a loan for buying property
- Commercial loan (n) /kəˈmɜːʃəl ləʊn/ – a loan for business purposes
Conclusion
This topic remains relevant for IELTS candidates due to its real-world applications. Practice writing about similar financial topics such as:
- Comparing different investment strategies
- Discussing banking regulations
- Analyzing saving versus spending habits
Share your practice essays in the comments section for feedback and improvement suggestions.