Interest rate

An interest rate is the percentage a lender charges a borrower, or pays a depositor, over a set period, usually expressed as an annual figure. On a loan it is the cost of borrowing. On a deposit or savings account it is what the holder earns for lending money to the institution.

Interest rates can be fixed or variable. A fixed rate stays the same for the life of the loan or deposit, making payments and earnings predictable. A variable rate can move up or down over time, often in line with a benchmark, so the amount paid or earned may change.

A rate can also be described as nominal or real. The nominal rate is the stated percentage. The real rate subtracts inflation, showing the change in purchasing power. When inflation is high, a real rate can be much lower than the nominal one, and sometimes negative.