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Crypto Terms:  Letter I

What are Interest Rates?

Interest Rates - defines the percentage which is charged for taking out a loan.
2 minutes

Let's find out Interest Rates meaning, definition in crypto, what are Interest Rates, and all other detailed facts.

The term Interest Rate is used to describe the percentage charged by either an individual or an institution for a loan.

Any type of asset that has intrinsic value can be subject to interest rates. For example, a computer, a car, a house, or even a cryptocurrency.

There are two terms you must know in regards to interests rates: APR and APY.

When a person takes out credit, they’re charged an interest rate which is described as an annual percentage rate (APR). It determines the amount of interest paid each year based on the full loan. 

Investors, individuals, or institutions that give out loans aren’t the only ones that reap the benefits of interest rates. For example, a bank pays its client an interest rate for holding their personal funds in a savings account provided by the bank. That interest rate defines how much the client will earn over one year and is also known as an annual percentage yield (APY).

When it comes to the cryptocurrency sector, interest rates operate the same for the most part except there are a few extra intricacies. 

Generally speaking, the cryptocurrency market is volatile. These high levels of volatility make the interest rate fluctuate significantly over a short period of time.

The interest rate is related to the amount borrowed. Therefore, if the borrowed amount increases in value, then the absolute value of the interest rate will increase accordingly. With the exception of currency pegging at the time of borrowing.