Interest — FinTeen

What it means

The Cambridge dictionary definition of interest is "Money that is charged, esp. by a bank, when you borrow money or money that is paid to you for the use of your money"

Why it matters

Interest rates matter because they control how much you have to pay to borrow money, control the returns of savings and give big banks a way to manage national economic growth and also inflation.

How to use it

Interest rates are used to measure the APR, the charge of borrowing money. The higher the rate, more you pay for the money you have borrowed.

Real-Life Example

In the Netherlands, the bank ABN Ambro has an APR of 7.5%. So if you borrow €10.000 from ABN Ambro to return in a year. You will have to return €10.411. Another Dutch bank Rabo Bank has rates from 6.8%. So if you barrow from Rabo Bank with their minumum rate, for the same amounts you have to pay €10.372, which saves you about €39 if you use Rabo Bank.

Did You Know?

The lowest interest rates are in Switzerland with 0.0%, on €1000 saved for a year you would earn €0.

The highest interest rates are in Türkiye with 37%, on €1000 saved for a year you would earn €370, making that €1000 a €1370.

Key Takeaways

Interest rate is the cost of borrowing money (APR)

High interest rates aren't good deals, it is the cause of high inflation, its not because for the savers to get rich. It could still mean loss if the currency still loses a lots of value

Low interest rates aren't bad deals, it means that your money did not lose its value in countries like Switzerland and Japan.