The different types of interest
The following table provides information on different types of interest. At the same time, it can be understood as a kind of short lexicon on the subject of interest in general.
Debit / credit interest
A basic distinction: From the consumer's point of view, debit interest is the interest he has to pay to the bank for a loan. In turn, the bank pays out credit interest to the saver. In most cases, debit interest is higher than credit interest.
Key interest rate
This important interest rate is set by the respective central banks such as the European Central Bank (ECB). These institutions regulate the money market of states and common currency areas such as the European Union (EU). The key interest rate is the interest rate that a central bank uses for transactions with affiliated commercial banks. Therefore, the interest rate that banks use for transactions with their customers is also based on the key interest rate.
Accordingly, the central bank can use the key interest rate to boost or curb the borrowing of entire economies. If a country's economy is in a downward trend, the responsible central bank lowers the key interest rate. In this way, it makes credit more attractive for banks, companies and consumers and promotes both consumption and investment. This usually boosts the economy. This money market policy became particularly evident in the first half of the 2010s and has :
Since the founding of the ECB in 1998, the key interest rate has never been lower than in the mid-2010s. Since 2014, it has hovered near zero.
In such low-interest phases, consumers can indeed take out loans very cheaply. However, the credit interest rates also fall - money deposits and various insurance products thus become less attractive. This is when private investors turn their attention to trading in sgexness.com area. The ECB thus encourages consumers (and banks) in a double sense to put money into the economic cycle.
On the other hand, the ECB also has the power to cool down an overheated economy. This was the case, for example, in the second half of the 2000s. The ECB raised the key interest rate to reduce borrowing and increase investment.
Negative interest rate
With this type of interest rate, the signs of the debit and credit interest rates are reversed: investors do not receive interest from the bank, but have to pay for deposits. Negative interest, also called penalty interest, occurs, for example, in times of prolonged low-interest phases with a negative deposit rate. Banks then have to pay penalty interest if they temporarily park money they do not currently need at the central bank. In some cases, the banks pass this on to investors. In most cases, however, only very large deposits from business customers are affected.
Nominal and lending interest rate / real interest rate
The nominal interest rate is the pure interest rate on which a transaction is based. When taking out a loan, it is also referred to as the lending rate. The real interest rate, on the other hand, includes the inflation or deflation rate. To determine the real interest rate, the inflation rate is subtracted from the nominal interest rate.
Example: The nominal interest rate of an investment is 1.0 percent, the inflation rate is 2.0 percent. In this case, there would be a loss of purchasing power of 1.0 per cent.