Surely you have heard many times about something called interest or interest rates. Today, I’ll explain what interest is.
In finance, interest is the cost of a loan or credit, or the profitability of savings or investments (which we will explain in a later video). It is the price paid for the use of someone else’s capital, such as money, or for having access to it, like through a deposit account.
The interest rate is the rate at which the cost of a loan or the return on savings accumulates. In other words it is the value attributed to the amount of time your capital remains deployed. Figuring out what that value should be is not random and depends on several market and personal factors such as:
- Rates charged and paid by governments.
- Inflation.
- Ability to cashout and liquidate.
- Overall risk.
- And the commitment period.
And that’s it for this video, hopefully you learned something and watch the next.
