InvestorWords.com
interest rate
Definition
A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve Board policies. For example, if a lender (such as a bank) charges a customer $90 in a year on a loan of $1000, then the interest rate would be 90/1000 *100% = 9%.
From a consumer's perspective, the interest rate is expressed as annual percentage yield (APY) when the interested is earned, for example, from a savings account or a certificate of deposit. When the interest is paid, for example, for a credit card, a mortgage, or a loan, the interest rate is expressed as annual percentage rate (APR).
Recommended Articles from InvestorGuide.com
Featured Tip
Two Credit Cards are Better than One, But More Isn't Always BetterDon't have "too many credit cards." There are good reasons to have at least two credit cards, but some people collect a stack of cards, including those from stores and oil companies, several of which ... Read more
Additional Tip(s)
- How to Avoid High Interest Rates on Credit Cards
- A Good Credit Record and Why You Should Have One
- 4 Ways to Save Money by Refinancing
- Basic Sets of Data Affecting Forex Prices
- Exchange Rates and Economic Indicators
- How to Find Government Incentives for First-Time Homebuyers
- Loans Against Your Home's Equity
- Paying Off Mortgages
- What is Carry?
Related Videos
Featured Advertiser
Get our free Term of the Day newsletter!



