Interest Rates Explained
Key Takeaways:
- Interest rates affect how much we pay for the money we borrow and how much we make on the money we save.
- When you borrow money from a bank, you'll pay interest for the time it takes you to pay it back.
- When you save money in a bank, you're allowing the bank to borrow from you, and the bank pays you interest for that.
- When you borrow money, a good credit score can help you qualify for lower interest rates.
Interest rates affect how much we pay for the money we borrow and how much we make on the money we save. For instance, you may pay a 20% annual percentage rate (APR) on money you borrow using a credit card. At the same time, you may make a 3% annual percentage yield (APY) on the money you save in a savings account.
Interest Rates and Borrowing
You can think of interest rates as a two-sided coin. One side is costing you money, and the other side is making you money.When you borrow money from a bank, you’ll pay interest for the time it takes you to pay the money back. The main ways to borrow money (and pay interest) are:
- Credit cards
- Home loans
- Auto loans
Interest Rates and Saving
When you save money in a bank, you’re allowing the bank to borrow from you. The bank pays you interest for that. The main ways to save money (and earn interest) are:- Checking accounts that earn interest—not all do
- Savings account
- Certificates of Deposit
- Retirement plans
Qualifying for Better Interest Rates
When you borrow money, a good credit score can help you qualify for lower interest rates. You can improve your credit score by paying your bills on time every month and lowering the outstanding balances as fast as you can.When you save money, consider all your options. A long-term CD, for example, may earn you higher interest than a checking or savings account. Start by reviewing the interest you’re already paying and making on accounts. At United, we’re always ready to help you plan. Stop by your local branch or schedule an appointment online.
