What is Interest Rate? | Finance in 5 Minutes скачать в хорошем качестве

What is Interest Rate? | Finance in 5 Minutes

An interest rate is the price you pay to borrow money or the reward you earn for lending it — think of it as "rent on money." In this episode of Finance in 5 Minutes: Money Terms Explained, we break down everything beginners need to know about interest rates, from simple and compound interest to how the Federal Reserve shapes the cost of borrowing across the entire economy. We start with the basics: the principal is the asset, and the interest rate is the rental fee. For borrowers, it's the cost of debt; for lenders, it's the rate of return. Banks profit from the spread between what they charge on loans and what they pay on savings. Next, we compare simple interest (a flat, linear calculation on the principal alone) with compound interest (the "snowball method" where interest accrues on both principal and accumulated interest). Over a 30-year mortgage, the difference is dramatic — compound interest is a miracle for savers but a heavy burden for borrowers. We also decode the fine print: APR (Annual Percentage Rate) is the cost you pay to borrow, while APY (Annual Percentage Yield) is what you earn on savings. Understanding both is essential for making smart financial decisions. The video covers how lenders price risk using credit scores, loan length, and borrower relationships, and explains the Federal Reserve's role as the "great thermostat" — raising rates to cool inflation and lowering them to stimulate growth. We also explore the inverse relationship between interest rates and bond prices. Finally, we share actionable steps: check your savings rate, improve your credit score, and always shop around before borrowing. This is part of the Finance in 5 Minutes series, where we explain essential money terms in plain language. Subscribe and hit the bell so you never miss an episode!