Interest rates

Definition

The percentage charged by a lender to a borrower for the use of money, or the percentage paid to a saver by a financial institution. The Federal Reserve influences interest rates to control inflation and stimulate or slow economic activity.

Examples

  • A bank charging 5% interest on a home mortgage loan
  • The Federal Reserve lowering the federal funds rate to near zero during the 2008 recession
  • Credit card companies charging 15–25% annual interest on unpaid balances

Related Terms

Federal reserve Fiscal and monetary policy Credit and debt Saving and investing

Study This Concept

Practice interest rates with free review games in these units:

Economics Unit 4: Money and Banking