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What Is an Interest Rate?

Interest rate is one of the most crucial financial concepts, affecting everything from personal savings to the health of the entire economy. Let's explore the core concepts in the most visual way.

📖 Core Definition

Essentially, the interest rate is the "price" of borrowing money. It is the percentage of the principal amount that a borrower must pay to a lender over a specific period (usually a year).

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For the borrower:

The interest rate is the cost paid to use capital.

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For the lender (or saver):

The interest rate is the reward, the income received.

🤔 Interest Rate vs. Interest Amount

These two concepts are easily confused. Distinguishing them clearly is very important:

Interest Rate is the percentage (%).

Example: 7%/year. This is the basis of the agreement.

Interest Amount is the actual monetary value (e.g., USD, VND).

Example: 7 million VND. This is the result of the calculation.

The Multi-faceted Impact of Interest Rates

The interest rate isn't just a number; it's a powerful regulatory tool. Let's see who it affects:

The "Thermometer" of the Economy

The State Bank uses interest rates to control inflation and to stimulate or curb economic growth. High rates help curb inflation but can slow growth, and vice versa.

The "Cost" of Growth

Interest rates directly affect businesses' borrowing costs. Low rates encourage investment and production expansion. High rates increase costs, reduce profits, and limit new projects.

Everyday Financial Decisions

Interest rates determine whether you should save or invest in other channels. They also affect decisions to take out mortgages or car loans. Low rates stimulate borrowing, while high rates encourage saving.

The Diverse World of Interest Rates

There are many ways to classify interest rates. Understanding each type will help you avoid confusion when encountering different financial products. Let's explore the most common types.

Simple vs. Compound Interest: The Power of Time

Simple Interest

Interest is calculated only on the initial principal amount. Simple, easy to calculate, no compounding.

Compound Interest

The interest from the previous period is added to the principal to calculate interest for the next period. "Interest earning interest."

The Rate You See vs. The Rate You Really Get

Inflation can "erode" your profits. The real interest rate tells you how much your purchasing power has actually increased.

Nominal Interest Rate

This is the stated interest rate, not accounting for inflation. It's the number you see in the contract.

Real Interest Rate

This is the nominal interest rate after subtracting the effects of inflation. It reflects your actual purchasing power.

Quick Real Interest Rate Calculator

- = ? %

Approximate formula: Real Rate ≈ Nominal Rate - Inflation Rate.

Fixed or Floating: Stability and Risk

Choosing between stability and flexibility is a crucial decision for long-term loans, especially mortgages.

Fixed Interest Rate

The interest rate does not change throughout the loan term.

+ Pro: Safe, easy for financial planning.

- Con: Often higher initially, doesn't benefit from market decreases.

Floating Interest Rate

The interest rate is adjusted periodically based on market fluctuations.

+ Pro: Benefits from market decreases, lower initial rate.

- Con: Risky when the market rises, hard to predict costs.

Interest Rate Calculator Tool

Don't just read the theory; calculate your own savings and loans. This tool will help you understand the numbers and make smarter financial decisions.

Deposit Amount (VND)

Interest Rate (%/year)

Term (months)

Result

Total interest earned:

Total amount at maturity:

*Note: This result does not account for compounding and applies only to end-of-term interest payments. Early withdrawal is subject to a very low non-term interest rate.

Loan Amount (VND)

Interest Rate (%/year)

Loan Term (months)

Interest Calculation Method

On Reducing Balance On Original Principal

Loan Overview

Total interest to be paid:

Total amount to be paid (principal + interest):

Period	Principal Paid	Interest Paid	Total Payment	Remaining Balance

Market Interest Rate Data

Explore the landscape of deposit interest rates at several major banks in Vietnam. This data provides an overview to help you compare and choose the best place for your savings. (Data for reference, July 2025)

Deposit Interest Rate Comparison (%/year)

Select term: 6 months 12 months 24 months

Factors Affecting Interest Rates

Interest rates don't rise or fall on their own. They are influenced by many macroeconomic factors and policies. Understanding these factors helps us better forecast interest rate trends.

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Capital Supply & Demand

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Inflation

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Government Policy

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Economy & Politics