Interest rate

An interest rate is a rate that is charged on a loan or a rate given for a deposit to a bank that is a percent of the total money amount. Excess interest rates are called usury and are against the law. However, an interest rate that was considered as usury 50 years ago, is now "the new normal". Financial institutions can usually charge interest rates that are greater than individuals can charge when they make private loans to other individuals or via credit cards.

Interest Rates of Bank Deposits

While banks can charge fees for services, mostly people depositing money in a bank will seem to see the amount of that money slightly increase over a long time due to interest rates that the bank will pay. However, for several years now the inflation rate (see also Consumer Price Index) is greater than the interest money paid by the banks, thus one actually loses money compared to investing in tangibles or inflation hedges. For example, a good or service costing $1000 in 2004, the same item would cost $1,242.89 ten years later in 2014 due to the cumulative rate of inflation of 24.3% over those ten years.

Interest rates can be either fixed (fixed rates) or they can change (adjustable rates). Rates on savings and checking accounts in a bank will usually change over time whereas a certificate of deposit will usually have a fixed rate for the life of the contract.

See Also

• Credit card debt
• Federal Reserve Bank
• National debt
• Treasury bills
• Quantitative easing