The interest rate is a percentage that is paid to the investor or charged to those who request a loan.
The interest rate is the percentage paid for invested capital in a certain period of time. It could be said that the interest rate is the price of the money that is paid or received to request or lend it at a particular time.
It is important to indicate that, in the field of economics and finance , the concept of interest refers to the cost of a loan or the profitability of savings. It is a term that, therefore, allows us to describe the benefit, utility, value or profit of a certain thing or activity.
Types of interest rate
The interest rate can be fixed (it remains stable for the duration of the investment or the loan is repaid) or variable (it is generally updated monthly to adapt to inflation , exchange rate variations and other variables).
It should be noted that the interest rate considered preferential consists of a lower percentage compared to the general one usually charged for loans granted to carry out certain specific activities.
The higher the interest rate, the greater the profitability of savings.
Historical evolution of the concept
The origin of the concept of interest dates back to stages prior to the Middle Ages . In it even the interest came to be frowned upon because it was considered an attack against Divinity . So much so that it was established as a sin of usury .
However, this idea would change over time to such an extent that from the Modern Age onwards we already find a whole network of authors who begin to talk about the concept that today's economy handles today. Among those would be found renowned figures such as the Scottish economist Adam Smith , Victor Riquetti who was known as the Marquis de Mirabeau or the American economist Irving Fisher .
The latter figure is very important in the matter at hand since, for example, he established the clear differentiation between what is called the nominal interest rate and the real interest rate .
In this list of influential figures in the field of interest, we cannot overlook the figure of the British economist John Maynard Keynes and the American Milton Friedman . And both experts are considered to be those who have inspired and influenced the current economy.
Thus, the first has led to the existence even within the branch of macroeconomics of an area called Keynesian economics. Meanwhile, the second stood out for receiving the Nobel Prize in Economics for his studies and research on stabilization policy and consumption analysis.
The simple and compound interest rate
Simple interest groups the interests that arise from a certain investment thanks to the initial capital. It should be noted that the interest derived from the capital in a certain period is not accumulated to produce the interest that corresponds to the following period. This means that the simple interest generated by the invested capital will remain identical in all investment periods as long as the rate or term does not change.
Compound interest , on the other hand, allows the interest earned after the end of the investment period not to be withdrawn, but rather to be reinvested and added to the principal.