Have you received invoices with an item that says “Interest rate of both%”, and you don’t know what it means? Well then we will explain it to you so that you are clear.
In economic terms, the interest rate is the measurement indicator that financial institutions have on the profitability of people’s savings and investments; and in the same way the additional cost that you will have to pay on a credit or a credit card.
What interest rates exist?
- Simple interest
- Simple interest means that only interest will be paid on the amount of money in your favor or payable.
- Compound interest
- This interest is paid on capital and on interest that has accumulated over a certain period of time.
What are the causes that affect the interest rate?
The country’s central bank
The main responsible for the interest rate in our country is El Banco de Guatemala (BANGUAT). His job is to act as “the bank of banks.” Among its functions are to save money to financial institutions and to offer the service of loans to banks so that, in the same way, they offer loans to individuals. The Bank of Guatemala makes the decision to calculate the interest rate for the banks and thus the entities slightly increase that margin of interest to have a profit.
When there is a lot of money in the street and in the hands of people, the demand for goods and services is greater than the production capacity in the country, that is, the supply. This causes prices to increase. This phenomenon is called inflation.
If the Bank of Guatemala decreases the amount of money in circulation, the interest rate increases so that the loan rate goes up and people decide not to borrow because it is expensive.
How do interest rates affect you?
A positive aspect about the increase in bank interest rates in interest rates is that people who have savings in banks have a higher return on the amount of money saved.
For their part, people who have loans or mortgages at a fixed rate do not suffer consequences on the increase in rates, because the amount of money they pay monthly cannot vary, precisely because of the term “fixed rate”.
On the contrary, the people who suffer the consequences of this general increase are those who have financial services with variable interest rates. Among them are users who use credit cards.
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