INTEREST

Interest is typically expressed as a quarterly or annual rate of percentage charged or earned on a sum of money. For example, if an individual borrows $2000 from a bank or lending institution and that institution charges an annual rate of six percent interest on the loan, the individual will pay the lender up to $60 a year for the use of the money. Paid interest is usually incorporated in monthly installments submitted by money borrowers in a scheduled repayment plan. The process is similar for interest earned. A bank may offer an annual earned interest rate of three percent to investors with a savings account. An individual with $100 in a savings account at that bank will earn $6 a year in interest.

Interest rates play an important role in lending and investment decisions. Money borrowers will look for the lowest interest rate they can find for their loan, whereas investors will look for the highest interest rate to better the return on their investments. In the economy the interest rate is often affected by factors such as a country's stage of development, productivity, and investment needs, among others. Internationally, fluctuating interest rates can cause flows of capital between financial institutions and different countries. For instance, if domestic interest rates are low in the United States and higher in Asia, investment capital will flow out of the United States and into Asia so that investors can take advantage of the higher interest rates on their investment moneys.