Interest Rates - Page 18

Interest rates refer to the cost of borrowing money or the return on savings, expressed as a percentage of the principal amount per period, typically annually. For borrowers, the interest rate determines how much they will pay to lenders for the use of their money; for savers, it indicates how much they will earn on their deposits.Interest rates can be categorized as fixed or variable. A fixed interest rate remains constant throughout the life of the loan or deposit, while a variable interest rate can fluctuate based on broader economic conditions or central bank policies.Interest rates are influenced by factors such as inflation, economic growth, and monetary policy set by central banks. They play a crucial role in economic activity by impacting consumer spending, investment decisions, and overall economic growth. Changes in interest rates can affect the accessibility of credit, the cost of mortgages, and the returns on investments, making them a vital aspect of financial markets and economic analysis.