GOBankingRates works with many financial advertisers to showcase their products and services to our audiences.
These brands compensate us to advertise their products in ads across our site.
This compensation may impact how and where products appear on this site.
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information.
you’re free to read more about oureditorial guidelinesand our products and servicesreview methodology.
After plummeting to record lows in 2020, they made a steep climb back.
As you navigate the changing interest rate climate, it helps to understand how interest rates impact your finances.
Heres what banks want you to know about interest rates.
When the Fed changes the federal funds rate, this impacts interest rates across loans and deposit products.
Banks and lenders take many other details into consideration when determining rates.
For example, say you wanted to take out an auto loan.
But your credit score is an especially important factor for most lenders.
In contrast, borrowers with a credit score between 601 and 660 received an average APR of 9.83%.
Taking the time to improve your credit score might help you tap into a lower interest rate.
An annual percentage rate (APR) represents the total cost youll pay each year for borrowing.
A higher APR means youll pay more for the loan overall.
The percentage takes the interest rate and the frequency of compounding into account.
When comparing products, its often easiest to compare APRs or APYs instead of interest rates alone.
you might determine the simple interest rate by multiplying the principal by the interest rate by the time.
In this case, you would owe $1,200 in total interest over the loan term.
Compound Interest
Compound interest involves earning interest on the interest youve already earned.
For borrowers, compound interest can make it harder to get out of debt.
But for savers, compound interest allows their funds to grow faster.
Say you took out a loan for $10,000 for three years with a 4% interest rate.
With interest compounding monthly, youll owe $1,272.72 in total interest over the loan term.
Variable Interest Rates
Variable interest rates can change over the life of the loan.
Fixed Interest Rates
Fixed interest rates cannot change over the life of the loan.
Generally, fixed interest rates produce standard monthly payments that are easier to plan for.
When You Are Borrowing Money
Borrowers should expect to pay interest on the funds they borrow.
But keeping a close eye on the details can help you avoid overpaying in interest charges.
Heres what to keep in mind.
When You Are Saving Money
Savers looking to grow their funds can turn to deposit products.
Heres how to push your dollars the furthest.
More From GOBankingRates
Share This Article:
