Interest

Introduction: Interest is a fundamental financial concept representing the cost of borrowing money or the reward for lending it. It is typically expressed as a percentage rate over a period, commonly annually, known as the interest rate. In the context of savings and investments, interest is the income earned by the lender or the return on investment for the investor. For borrowers, it's an expense on loans or debt. Interest rates are determined by a variety of factors including central bank policies, market demand for credit, inflation expectations, and the risk associated with the borrower. They play a crucial role in economic policy, influencing consumer spending, investment decisions, and overall economic growth.

Key Types of Interest:

• Simple Interest: Calculated on the principal amount of a loan or deposit.
• Compound Interest: Calculated on the principal amount and also on the accumulated interest of previous periods.

Impact on Economy and Individuals:

• Monetary Policy: Central banks manipulate interest rates to control economic growth and inflation.
• Investment Decisions: Interest rates affect the attractiveness of different investment vehicles.
• Consumer Borrowing: Changes in interest rates influence consumer decisions on mortgages, car loans, and other personal loans.