Introduction to Interest Rates

By: DANIEL GOSS


posted on: October 2nd, 2019

This article is sponsored by REdy Money, your destination for all things finance and banking.

I AM SAVING MONEY IN THE BANK. WHAT IS AN INTEREST RATE?

Imagine you are a person or a business and you want to store money in the bank. Often you will get some extra money back on top of the amount you stored. This happens when the bank offers an interest rate to the customer who stores money in the bank.
You get more money as a reward for storing money in the bank when the interest rate is higher. You should always store money in bank accounts which have high interest rates.

I AM BORROWING MONEY FROM THE BANK. WHAT IS AN INTEREST RATE?

Imagine you want to borrow money from the bank. Often you will have to pay the bank more money on top of the amount you borrow. This happens when the bank charges an interest rate to the customer who borrows money from the bank. When the interest rate is higher you are charged more as a fee for borrowing money from the bank. You should always borrow money from banks with low interest rates. See our book on interest rates for more information on banks and interest rates.

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