What is the interest rate? Learn about common interest rates at banks

1. Overview of interest rates

1.1. Concept

Interest rate is the percentage that the borrower must pay to the lender (or that the depositor receives from the bank) on the principal amount in a certain period of time, usually calculated on a yearly basis. This is the core factor in financial and banking activities, determining the cost of capital and investment profits.

It is important to distinguish between interest rate and interest, as they are two different concepts. Interest rate is the percentage applied to calculate interest based on the principal amount over a specified period of time. Meanwhile, interest is the actual amount that the borrower must pay or the depositor receives after maturity.

For example: If you deposit 100 million VND with an interest rate of 6%/year, then after one year, the actual interest received will be 6 million VND.

Customers need to pay attention to bank interest rates when borrowing and saving.

1.2. The role of interest rates

Interest rates play a key role in both the macro economy and personal financial management. For depositors, interest rates are a source of passive income, contributing to encouraging savings and investment activities. For borrowers, interest rates reflect the cost of capital, directly affecting the ability to spend, produce, do business and expand economic activities.

At the macro level, interest rates are an important tool in the State Bank's monetary policy management, used to control inflation, stabilize exchange rates and promote sustainable economic growth.

1.3. Factors affecting interest rates

Bank interest rates are an index influenced by many economic and financial factors both domestically and internationally. From the perspective of banking operations, some of the main influencing factors can be analyzed as follows:

• Monetary policy of the State Bank: This is a factor that guides and governs the interest rate level. When the State Bank adjusts the operating interest rates (such as refinancing and rediscount rates), the deposit and lending interest rates of commercial banks will fluctuate accordingly to ensure compliance with regulations and maintain system liquidity.
• Inflation rate: Inflation has a direct correlation with interest rates. In the context of rising inflation, banks are forced to adjust interest rates to increase in order to preserve the real value of money and maintain a reasonable level of return for depositors.
• Supply and demand of capital in the market: When the demand for loans increases sharply (for example, during a period of production and business expansion) or when mobilized capital becomes scarce, interest rates will tend to increase due to higher capital mobilization costs.
• Macroeconomic situation: Factors such as GDP growth, exchange rate fluctuations, the impact of financial crises or economic stimulus policies can all change market expectations, thereby affecting interest rates.
• World political and economic situation: Global interest rate developments, especially in major economies, also create pressure for domestic adjustment.
• Borrower's reputation and financial capacity: Customers with good credit histories often enjoy more favorable interest rates.

Inflation is one of the leading factors affecting interest rates.

2. 5 Common types of interest rates

2.1. By nature of loan

Depending on the purpose and the subject of application, interest rates in the banking system are divided into many different types. Each type of interest rate has its own role in mobilizing, lending and regulating the financial market. Below are the most common types of interest rates:

• Deposit interest rate: Is the interest rate that banks pay to depositors, to encourage savings and capital mobilization.
• Basic interest rate: As prescribed by the State Bank, used as a reference basis for commercial banks to set lending interest rates.
• Credit interest rate: Is the interest the borrower must pay to the bank when using capital for a certain period of time.
• Discount rate: The interest rate that the State Bank applies when buying back valuable papers from commercial banks, helping to regulate liquidity.
• Rediscount rate: Interest rate applied when the State Bank rediscounts valuable papers that have been discounted by commercial banks for customers.
• Interbank interest rates: The interest rate applied to short-term loans between banks, reflecting the availability of funds in the banking system.

2.2. According to the flexibility of interest rates

Interest rates can be determined in two different flexible ways, depending on the bank's policy and the customer's needs:

• Fixed interest rate: The interest rate remains unchanged throughout the loan or savings term. This form helps borrowers easily plan their finances because they do not have to worry about interest rate fluctuations.
• Floating interest rate: Interest rates are adjusted periodically (every 3-6 months) according to market fluctuations or the basic interest rate announced by the State Bank. This type is suitable for those who accept risks to have the opportunity to enjoy low interest when the market falls.

Current interest rates are very flexible.

2.3. According to the real value of interest

Interest rates can be considered in terms of inflation, reflecting the real value of the money the depositor or borrower receives:

• Nominal interest rate: Is the interest rate published on the loan or deposit contract, not taking into account the impact of inflation.
• Real interest rate: Is the interest rate excluding inflation factor, reflecting the strength of the amount of interest received.

2.4. According to the method of interest calculation

The way interest is calculated directly determines the amount of interest that the customer receives or has to pay:

• Simple interest:Interest is calculated only on the original principal amount throughout the term.
• Compound interest:Interest is added to the principal to calculate interest for the next period (compound interest).

3. Frequently Asked Questions

1. How does the increase in refinancing interest rates affect borrowers?

When the refinancing rate increases, the cost of borrowing for commercial banks also increases. This causes lending rates for individual and corporate customers to tend to increase, making borrowing costs higher.

2. What is a reasonable difference between savings interest rates and loan interest rates?

Typically, lending rates are 3–5% higher than deposit rates per year. This difference helps banks cover operating costs and maintain reasonable profits.

3. Should I save money using Compound Interest?

Yes. Compound interest savings help you maximize profits by adding interest to the principal, “interest on interest”. However, this form is suitable for long-term depositors who do not need to withdraw money before the maturity date.

4. How do I know if my loan interest rate is fixed or floating?

You can check in the loan agreement — the “interest rate clause” section. If it says fixed rate for the entire term, it is a fixed rate; if it says “periodically adjusted to market” then it is a floating rate.

4. Save money, borrow money quickly, attractive interest rates at SeABank

SeABank offers savings and loan products with competitive interest rates in the market.With modern technology platform, SeABank provides financial solutionsConvenient with flexible procedures and many preferential interest rate policies for each period.

SeABank has attractive interest rates for savings and loans.

Advantages of saving at SeABank:

• Competitive interest rates, higher incentives when depositing online via SeAMobile or SeANet application.
• Flexible terms, ranging from short term to long term, suitable for all financial needs.
• Easy deposit and withdrawal, track savings and accumulated interest right on your phone.

Advantages of borrowing capital at SeABank:

• Simple procedure,Flexible disbursement time depending on profile and loan product.
• Preferential interest rates, many flexible loan packages such as unsecured loans, mortgage loans, business loans.
• Dedicated consulting, supporting customers to choose loan packages suitable for their income and capital usage goals.

With SeABank, you can rest assured that your deposits will generate profits effectively and you can borrow money conveniently and transparently, making personal financial planning easier than ever.

Through the article, you have clearly understood What is the interest rate?, the role as well as factors affecting interest rates in reality. Understanding and monitoring interest rate fluctuations will help you be more proactive in saving, borrowing or investing. If customers are in need of borrowing or saving, SeABank offers convenient financial solutions with flexible procedures and many preferential interest rate policies for each period.

To learn more about SeABank products, please contact the nearest transaction point, call Hotline 1900 555 587 or visit the website www.seabank.com.vn for more details.