What Are Interest Rates?
Interest rates are the percentage cost of borrowing money or the return earned on savings and loans over a period of time. They are typically expressed as an annual rate and influence how much borrowers pay on credit and how much savers earn on deposits. Central banks, like the Bank of England or the Federal Reserve, set benchmark rates that guide interest levels across an economy, affecting lending rates, mortgages, and business investment.
When a bank lends money, the interest rate determines how much extra the borrower must pay back in addition to the principal loan amount. Conversely, when you deposit money in a savings account, the interest rate determines how much your balance grows. Interest rates respond to economic conditions: they may rise to cool inflation or fall to encourage borrowing and spending.
In the context of digital asset ecosystems, interest-bearing products (like staking or yield accounts) are often compared to traditional interest rates to help users understand potential returns and trade-offs.
