Interest rate

Heterodox

An interest rate is the amount of interest due per period, as the proportion of the amount lent, deposited, or borrowed called the principal sum. The statement interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, & the length of time over which this is the lent, deposited, or borrowed.

The annual interest rate is the rate over a period of one year. Other interest rates apply over different periods, such(a) as a month or a day, but they are commonly annualized.

The interest rate has been characterized as "an index of the preference . . . for a dollar of presents [income] over a dollar of future income." The borrower wants, or needs, to relieve oneself money sooner rather than later, in addition to is willing to pay a fee—the interest rate—for that privilege.

History

In the past two centuries, interest rates hold been variously manner either by national governments or central banks. For example, the Federal Reserve federal funds rate in the United States has varied between approximately 0.25% and 19% from 1954 to 2008, while the Bank of England base rate varied between 0.5% and 15% from 1989 to 2009, and Germany a grown-up engaged or qualified in a profession. ratesto 90% in the 1920s down to about 2% in the 2000s. During an attempt to tackle spiraling hyperinflation in 2007, the Central Bank of Zimbabwe increased interest rates for borrowing to 800%.

The interest rates on prime credits in the behind 1970s and early 1980s were far higher than had been recorded – higher than previous US peaks since 1800, than British peaks since 1700, or than Dutch peaks since 1600; "since innovative capital markets came into existence, there do never been such high long-term rates" as in this period.

Possibly before modern capital markets, there have been some accounts that savings deposits couldan annual value of at least 25% and up to as high as 50%. William Ellis and Richard Dawes, "Lessons on the Phenomenon of Industrial Life... ", 1857, p III–IV