What's interest rate?

Think of an interest rate like the price of borrowing money. If you take out a loan, the bank changes you a little extra for lending you that money-that's the interest. If you save money in the bank, they pay you a little extra for keeping it there-that's also interest!

Type of interest rates

1.Fixed interest rate-Stays the same the whole time. If you get a loan with a fixed rate, you always pay the same amount in interest.

2.Variable interest rate-Goes up and down depending on the economy. If rates drop, you pay less; if they rise, you pay more.

3.Simple interest-You only pay interest on the original amount you borrowed.

4.Compound interest-You pay interest on both the original amount and the interest that keeps adding up.(This can be good for savings butt bad for debt.)

How it Affects the Economy:

·When interest rates are low-loans are cheaper, people borrow and spend more, businesses grow, and the economy speeds up.

·When interest rates are high-loans are expensive, people borrow less,spending slows, and inflation is controlled.

So, interest rates are like a "speed control" for the economy. Lower rates make things go faster, and higher rates slow things down to prevent problems like inflation.