Interest Rate
A percentage rate applied to borrowed or deposited funds in financial services.
Detailed Description
Interest Rate
What is an interest rate?
An interest rate is the percentage charged on a loan or paid on deposits, representing the cost of borrowing money or the return on invested funds.
What are the main types of interest rates?
The main types include nominal interest rate, real interest rate, APR, effective annual rate (EAR), and discount rate.
What is the difference between fixed and variable interest rates?
Fixed interest rates remain constant throughout the loan's life, while variable interest rates fluctuate based on market conditions.
How do central banks influence interest rates?
Central banks set benchmark interest rates that influence overall lending rates in the economy.
Why is understanding interest rates important for personal finance?
Understanding interest rates is crucial as they affect savings accounts, loans, credit cards, and mortgages, impacting overall financial health.