Interest rates come in various forms, and it’s essential to understand the differences between them:
- Prime Rate: The prime rate is the interest rate that banks use as a benchmark for setting interest rates on various financial products, including loans and credit cards.
- Federal Funds Rate: The federal funds rate is the interest rate at which banks lend money to each other overnight. It influences short-term interest rates throughout the economy.
- Fixed vs. Variable Rates: When borrowing or investing, you may encounter fixed and variable interest rates. Fixed rates remain constant throughout the term of the loan or investment, while variable rates can change based on market conditions.