So in this article we will explain what the current interest rate is, its characteristics, types and situations that merit it, let’s start.The interest rate is the fee or percentage of money that is acquired when investing a specific capital at a financial level. In other words, it is the balance to be paid for using a certain amount of money and benefiting from it respectively. However, when it comes to credits or loans, the added fee is the one that the lender receives from the debtor and is considered an interest rate.In summary, the current interest rate is one that is regularly issued by organizations or banks to the public, showing the extra percentage of money to be paid.
Features of Current Interest Rate
There are elements and factors that define the interest rate, here we will show you in a simple way the characteristics it has.
- The interest rate makes it possible to accurately measure the economy of a country , since it works as an economic indicator.
- The interest rate can vary, this can be set as fixed or according to the interest rate that is required and used.
- Encourage banks or organizations, as a high interest rate can significantly increase savings.
Interest rate types/Current Interest Rate
As well as the characteristics, there are several interest rates such as the discount rate and others that we will show you here.
- Fluctuating Interest : This is updated on a monthly basis and in extraordinary cases every three months.
- Real Interest: This is among the most important within a banking organization, since it is specifically manifested in the real interest obtained when investing. This is because inflation minimizes the potential for purchases and money loses value.
- Nominal interest rate: This rate is evaluated and capitalized once a year, having varied periods.
- Effective interest rate: In general, this is manifested only once during the year, taking into account the frequency with which it is paid. This combines the capitalization and the reintegration of said interests.
- Official or fixed interest: This is the rate that does not vary at any time and remains static.
Situations that deserve an current interest rate
There are certain conditions or situations that warrant an interest rate, below we present two necessary cases.
- When a person takes out a loan (personal loan) to be able to invest in the education of children or due to illness, he will have to pay the loan plus a percentage of interest for the use of that money.
- Now when a company supports one of its employees through financing by giving him a car, the worker will then have to pay the stipulated amount together with the established interest rate .
Elements that imply the interest rate
- It is set by the central bank of a legal zone or country, or also by the different states that make up that nation.
- Effective liquidity bias , since while the asset is illiquid, investors are more likely to demand more compensation. On the other hand, shareholders demand high returns for long-term investments.
- The risk linked to the type of fixed asset induces demands on the part of the shareholders for a higher interest rate in order to face greater risks.
Factors that affect the interests of the market
- The policy or law of supply and demand established by the market.
- Bonus for cash flow.
- Liquidity premium.
- Predictable inflation.
- Bonus for issuer credit vulnerability.
Finally, the current interest rate is part of the financial movements carried out in organizations such as commercial banks and companies. In addition, these are classified into various types of rate issued and regulated by the laws that are handled in a country.