Interest Rates: Different Types and What They Mean to Borrowers

Interest rates are charges by lenders to borrowers, expressed as a percentage of the loaned amount. They can apply to loans or savings accounts, with annual percentage yield (APY) for savings. Low-risk borrowers have lower rates, while high-risk borrowers face higher rates. Mortgages often use simple interest, while other loans may employ compound interest. Interest rates impact borrowing and saving decisions, with factors like the economy influencing rates set by central banks. Mortgage discrimination based on race has been reported, affecting rates and approval. Interest rates reflect risk and opportunity cost, with central banks using them as a monetary policy tool. Bonds pay fixed interest rates and their value fluctuates with prevailing rates. Overall, interest rates represent the cost of debt for borrowers and the return for lenders in financial transactions.