Interest Rates
Interest rates explain how the cost of money is set and transmitted across savings, loans, and credit products.
INTEREST RATES
Frequently Asked Questions
Interest rates emerge from interactions between policy decisions, market expectations, and risk assessment rather than from a single authority.
Learn more: How Interest Rates Are Set in the Financial System
Central bank rates influence short-term funding conditions, which gradually shape how financial institutions price borrowing.
Learn more: Why Central Bank Rates Influence Everyday Borrowing
Deposit pricing responds to competition, funding needs, and customer behavior, which makes adjustments slower than changes in loan pricing.
Learn more: How Interest Rates Affect Savings and Deposits
Interest rates interact with time, causing borrowing costs to accumulate gradually over the life of a loan.
Learn more: How Interest Rates Shape Loan Costs Over Time
Credit card rates include structural risk and pricing floors that limit how much they respond to broader rate changes.
Learn more: Why Credit Card Rates Behave Differently
Key Terms
Policy Rate Transmission
Definition
Policy rate transmission describes how changes in central bank rates move through financial institutions and markets before affecting consumer borrowing and saving rates.
Interest Rate Pass-Through
Definition
Interest rate pass-through refers to the degree and speed at which changes in market or policy rates are reflected in loan and deposit pricing.
Term Structure of Interest Rates
Definition
The term structure of interest rates shows how borrowing costs differ across short-term and long-term maturities, reflecting expectations about inflation and economic conditions.
Rate Sensitivity
Definition
Rate sensitivity measures how responsive a financial product’s pricing is to changes in interest rate conditions.
Interest Rate Lag
Definition
Interest rate lag refers to the delay between changes in policy or market rates and their impact on consumer-facing rates.
