Economics
Interest Rates
Quick fact
A 5% annual interest rate on a $10,000 loan can add over $13,000 in interest after 10 years if left unpaid.
Why this is interesting
Have you ever wondered why loans seem to cost more than the amount you borrow? It's all about interest rates, which decide how much extra you'll pay.
Read the full explanation
Understanding Interest Rates
Interest rates are the price of borrowing money. When you take out a loan, the lender charges you extra—this is called 'interest.' The rate tells you how much that extra cost will be over time. If you save money instead, the bank might pay you interest as a reward for keeping your funds with them.
A deeper explanation
Interest rates are set by banks and central authorities to control spending, inflation, and economic growth. A high rate makes borrowing expensive, which can slow down spending and reduce inflation. A low rate encourages people to spend or invest, boosting the economy. These rates affect everything from mortgages to credit cards and savings accounts.