An interest rate is the percentage of the principal amount of a loan or savings account that is charged or paid over a certain period, typically expressed as an annual percentage rate (APR). In the context of borrowing, interest rates represent the cost of borrowing money, while for savings accounts, they indicate the return earned on deposited funds.

Interest rates are determined by various factors, including monetary policy set by central banks, inflation rates, economic conditions, and the overall supply and demand for credit in the market. Central banks use interest rates as a tool to influence economic activity, often adjusting them to stimulate or cool down borrowing and spending.

There are different types of interest rates, such as fixed rates, which remain constant throughout the loan term, and variable rates, which can fluctuate based on changes in market conditions. Additionally, there are nominal interest rates, which do not account for inflation, and real interest rates, which are adjusted for inflation to reflect the true cost of borrowing or the real return on savings.

Overall, interest rates play a crucial role in shaping the borrowing and lending behavior of individuals, businesses, and governments, influencing investment decisions, consumer spending, and overall economic growth.

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