It is also charged on top of the principal by a lender to a borrower for the use of assets.
An interest rate also applies to the amount earned after depositing in a bank or credit union; for example, 'susu' savings.
It shows how much a person pays or earns on an amount they deposit or borrow.
If a 10% interest is charged a GH¢100 loan it means the borrower will have to pay an extra ten cedis on the loan when it is due to be returned.
On the other hand, banks or credit unions offer interest rates on members contributions, which means if members deposit or contribute GH¢100 with an interest rate of 10%, they would be making GH¢110 at the end of the period under consideration.
For an economy, when interest rates are high, fewer people and businesses can afford to borrow whiles encouraging more people to save. High-interest rates make loans more expensive while saving becomes attractive because people will receive more on their savings.
Low-interest rates have the opposite effect on the economy. Savings rates fall. When people realise they get less interest on their deposits, they might decide to spend more. Read Full Story
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