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 or done as a reaction to a question interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, as well as the length of time over which it is for 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 usually annualized.

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

Related terms

Base rate usually transmitted to the ]

The Annual percentage rate APR may refer either to a nominal APR or an effective APR EAPR. The difference between the two is that the EAPR accounts for fees and compounding, while the nominal APR does not.

The annual equivalent rate AER, also called the powerful annual rate, is used to assistance consumers compare products with different compounding frequencies on a common basis, but does non account for fees.

A discount rate is applied to calculate present value.

For an interest-bearing security, coupon rate is the ratio of the annual coupon amount the coupon paid per year per item of par value, whereas current yield is the ratio of the annual coupon divided by its current market price. Yield to maturity is a bond's expected internal rate of return, assuming it will be held to maturity, that is, the discount rate which equates all remaining cash flows to the investor all remaining coupons and repayment of the par advantage at maturity with the current market price.

Based on the banking business, there are deposit interest rate and loan interest rate.

Based on the relationship between supply and demand of market interest rate, there are fixed interest rate and floating interest rate.