1. Definition

Bank interest rates are the percentages that financial institutions, such as banks, charge for lending money to borrowers or offer to depositors as a return on their savings. These rates represent the cost of borrowing or the reward for saving and vary depending on economic factors, bank policies, and the type of financial product.

2. Industrial Applications

Interest rates play a critical role in industrial sectors by influencing borrowing costs for companies that need capital for expansion, equipment, and operational funding. High-interest rates can increase the cost of borrowing, discouraging investments, while low rates can stimulate economic growth by making loans more affordable for businesses. Large industries, such as manufacturing and construction, often rely heavily on loans, and interest rates directly affect their growth and profitability.

3. Types of Bank Interest Rates 

A. Fixed Interest Rates 

 Fixed interest rates remain constant throughout the term of the loan or investment. This provides stability for borrowers and depositors, as they know the exact interest costs or returns they will receive. Fixed rates are commonly used in mortgages and long-term loans.

B. Variable Interest Rates

Variable interest rates fluctuate based on market conditions or reference rates, such as the prime rate. This means that the rate can increase or decrease over time, affecting the amount payable by borrowers or earned by savers. Variable rates are often used for short-term loans and adjustable-rate mortgages.

C. Compound Interest 

Compound interest is interest calculated on the initial principal and also on the accumulated interest from previous periods. This approach allows for faster growth of investments or debt, as interest builds on itself over time. Compounding is common in savings accounts and long-term investments.

D. Simple Interest 

Simple interest is calculated only on the original principal, without compounding. This results in a linear growth of interest. Simple interest is often applied in short-term loans and is less common in savings products.