There are many different types of interest rates that occur in connection with loans, savings and monetary policy. Do you know what the terms nominal interest rate, deposit rate or reference rate mean?
We go through these and other types of interest rates here.
What is interest?
Interest is the cost of money. You can look at interest from two directions. If you borrow money, you have to pay interest to the lender. The interest rate is then a compensation to the lender for you to borrow money.
If you lend money, for example when you save money in a bank account, the interest rate is the remuneration that the bank pays to you for lending your money.
Nominal interest rate
The nominal interest rate is the interest rate that you can pay per year when you have a loan. For example, if you borrow $ 50,000 and the nominal interest rate is 10%, you may pay $ 5,000 in nominal interest during the year.
Effective interest rate
Effective interest rate is the total cost of a loan or credit. Effective interest rates correspond to approximately the sum of the nominal interest rate and all fees for the loan. The exact formula is a bit more complicated. Fees can, for example, be the setup fee or a newspaper fee.
Lenders must show the effective interest rate in their marketing to make it easier for consumers to compare the loans.
Delinquent interest is an interest that is in addition to the ordinary interest rate if you do not pay an avi for a loan on time. Penalty interest is also called penalty interest and it can often be very high.
Fixed interest rate
A fixed interest rate is an interest rate that is fixed for a certain period, usually between 1 year and 10 years. It is a contract which means that you know what interest rate you will have to pay on the loan during the term of the loan. Fixed interest rates are common on mortgages .
Fixed interest is an interest that does not change during the contract period. Often, fixed interest rates are used synonymously with fixed interest rates. It is a common misconception that private loans have a fixed interest rate, although there may be short-term mortgage loans with a fixed repayment period.
Variable interest rate
Variable interest rates are interest rates that can be changed as the Riksbank’s repo rate changes. When you talk about mortgages, it is the so-called three-month interest rate that is referred to as variable interest rates.
Deposit interest is the interest that a bank or savings bank pays in compensation for depositing money with them.
Loan interest rate
Loan interest rate is the rate that you as a borrower will pay to the bank for your loan, such as unsecured loans or mortgages (mortgage interest).
Monthly interest is the interest you get to pay each month. It is a common term for high interest rate mortgages. By setting the monthly interest rate, the loan appears to be cheaper.
You can convert the annual interest rate to the monthly interest rate by dividing the annual interest rate by the number of months, ie 12.
To calculate the effective annual interest rate based on the monthly interest rate, multiply the monthly interest rate (expressed as interest rate / 100 + 1) by itself twelve times and then subtract 1.
Real interest rate
Real interest rates correspond to the annual interest rate minus inflation. If you save money, the real interest rate can be negative if inflation is greater than the interest rate on the savings account.
Similarly, inflation causes your real interest rate on, for example, a mortgage or private loan to be lower than the stated interest rate. Since the real interest rate cannot be predicted, no banks specify it.
The reference rate is an interest rate set by the Riksbank once every six months, 1 January and 1 July. The reference rate corresponds to the repo rate at the end of last six months rounded to the next higher half percentage point. The reference rate is used, among other things, to determine the interest rate.
The repo rate is the interest rate used by the Riksbank when it lends money to the banks. This interest rate in turn affects what interest rate the bank can offer on its loans.
Savings rate is the same as deposit rate, that is, the interest rate you receive when you deposit money at the bank.
The government loan rate is intended to reflect the government’s average borrowing rate. It is based on the average market interest rate on government bonds with at least five years remaining maturity.
The policy rate is the same as the repo rate.
Lending rates are the same as loan rates.
The annual interest rate is the same as the nominal interest rate.