Interest rates are often discussed in financial conversations, but not everyone knows how they work or how they affect our personal finances. Whether you are considering a loan or looking to save money in a deposit product, understanding interest rates is essential to make informed decisions.
This article will explain the basics of interest rates, highlight the difference between a “Debit Interest Rate” and a “Credit Interest Rate”, and show how we at APS Bank can help you make the most of them.
What Are Interest Rates?
At its core, an interest rate is the cost of borrowing money or the reward for saving it. When borrowing money, it is expressed as a percentage of the loan, and when saving money, it is expressed as a deposit amount.
Banks and other financial institutions set interest rates, which are influenced by the European Central Bank and then followed up by the Central Bank of their country.
Here is what you need to know:
- If you borrow money, for example through a home loan, you will pay an interest rate to the lender, such as a bank. This is called a “Debit Interest Rate”.
- If you are saving money in a deposit product, for example a term deposit or a savings account, you will earn an interest rate on the money deposited. This is called a “Credit Interest Rate”.
Interest rates can vary depending on the type of product you have, your financial standing, and the economic environment.
Why Are Interest Rates Important?
Interest rates affect both borrowing and savings. Here is why they are important:
- For borrowers: the interest rate on a loan determines how much you will repay the bank. Higher interest rates mean higher payments. Knowing your interest rate helps you plan and budget.
- For savers: a credit interest rate shows how much your savings will grow. A higher interest rate means more earnings on your savings.
Interest rates also affect the economy. Low interest rates make borrowing easier and encourage spending. High interest rates make saving more attractive.
Debit Interest Rate vs Credit Interest Rate
Now that you know what interest rates are, it is time to look at the difference between debit and credit interest rates.
Debit Interest Rate
The interest rate you pay on your loan is typically part of the amount you owe each month (usually known as the monthly repayment) and is calculated as a percentage of the total loan amount. The interest rate is usually quoted annually, but it is applied more frequently, often monthly.
There are two types of debit interest rates:
- Fixed Interest Rate: it stays the same during a specified period throughout the loan, agreed between you and the lender, so your payments are predictable.
- Variable Interest Rate: it changes with the market, meaning your payments can go up or down.
At APS Bank, we offer home loans with both fixed interest rates or variable interest rates, depending on what suits your financial situation and goals – click here to learn more. Understanding the nature of your loan’s interest rate is crucial when planning your finances and managing repayments.
Credit Interest Rate
On the other hand, when you deposit money into a deposit account such as a savings account or a term deposit account, the bank pays you an interest rate. This is usually quoted annually but often applied monthly or quarterly.
At APS Bank, we offer a fixed interest rate for a specific period, allowing you to grow your savings with the peace of mind that the rate will not change during the term. For example, the APS Green Term Deposit Account also allows you to make a positive environmental impact while earning a return on your savings.
Get Started with APS Bank
Whether you are looking to borrow money for a home or car, or save money for the future, understanding interest rates is the key to making informed financial decisions. At APS Bank, we offer a range of products with competitive interest rates that suit your needs, including home loans, term deposits, and more. To learn more about interest rates and start planning your financial future, fill out the form below and let us help guide you on your financial journey.
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Approved and issued by APS Bank plc, APS Centre, Tower Street, B’Kara BKR 4012. APS Bank plc is regulated by the Malta Financial Services Authority as a Credit Institution under the Banking Act 1994 and to carry out Investment Services activities under the Investment Services Act 1994. The Bank is a participant in the Depositor Compensation Scheme established under the laws of Malta. Applications are subject to the Bank’s lending criteria. Terms and conditions apply and are available on apsbank.com.mt/terms-and-conditions.
