Interest Rate

What is an Interest Rate?

The Interest Rate is a crucial concept in finance that represents the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. It can also refer to the rate paid by a bank on a depositor's funds. It is a key economic driver influencing investment, inflation, and consumption behaviors.

Short Description: The percentage at which interest is charged or paid in financial transactions, reflecting the cost of borrowing or the gain from lending.

• Types of Interest Rates: Fixed, variable, nominal, and real.
• Impact: Influences economic activity by affecting consumer spending and business investment.
• Central Banks: Frequently adjust interest rates to control monetary policy and stabilize the economy.

Understanding interest rates is vital for financial planning and assessing the cost or benefit of financing options. They are a central factor in the economy affecting everything from mortgages to savings accounts.