Interest Rates: The basics

4 Jul, 2024

We hear the word “interest rate” very often and it concerns us more than we think. Whether it is a deposit interest rate or a lending interest rate, whether it is fixed or variable, these terms may seem confusing at first. Below you will find some general information that will help you to better understand some of these key terms.

What do interest rates mean:

The interest rate is the interest due, expressed as a percentage of the principal amount borrowed or deposited. The difference with the interest is that the interest is the amount and the interest rate is the percentage.

Deposit and loan interest rate:

The deposit interest rate is the interest rate earned on the principal amount deposited and the loan interest rate is the interest rate paid on the principal amount borrowed. The level of each interest rate depends on the duration of the product, the specific interest rate calculation methodology each bank uses, changes in the national and international regulatory environment, market conditions and any other external or internal factors impacting the bank’s cost base. Deposit and loan interest rates can be fixed or variable.

Fixed and variable interest rate:

A fixed interest rate deposit/loan is when the interest rate remains unchanged during the life of the deposit or the loan. Variable interest rate is more commonly applicable to loans and is when the interest rate fluctuates during the life of the loan based on an underlying index or benchmark that periodically changes. With a fixed interest rate loan the monthly payments are fixed whereas with a variable interest rate loan the monthly payments vary. This means that it can increase or decrease depending on how the underlying index or benchmark is affected by market and several economic or other factors.

Annual Percentage Rate (APR):

The Annual Percentage Rate (APR) is the yearly interest charged for a loan or earned by a deposit and includes both interest and fees or charges. Consumers can use the APR to compare products between different financial institutions as it is calculated in a consistent way and protects consumers from misleading advertisement. Namely a loan product advertised with a lower interest rate may have a higher APR than a loan product with a higher interest rate due to higher overall fees.

The table below demonstrates this by comparing two indicative loans with different interest rates and fees/charges:

Loan A Loan B
Amount €100,000 €100,000
Tenor 10 years 10 years
Interest Rate 4% 4.15%
Additional Fees/Charges €1,250 €0
APR 4.28% 4.15%

This table is for informational purposes only.


For more information see Ancoria Bank’s Base Rates and Rates Definitions: Effective as of 24/02/2020 / Effective before 24/02/2020 and Personal Banking Interest Rates.