What is an interest rate, and how do they work?

Interest rates are the price of borrowing money, usually shown as a percentage over time. They shape the cost of loans and the return on savings, so they influence both consumer behavior and business investment.

The Federal Reserve’s policy rate helps steer broader borrowing costs in the economy. When that rate moves, it can affect mortgages, credit cards, auto loans, and savings yields.

For investors and advisors, interest rates remain a key signal for portfolio positioning. Higher rates can pressure bond prices but improve income opportunities in cash and short-duration assets.

They also matter for equity markets by affecting valuations and financing costs. In this environment, understanding how rates move is essential for balancing risk, income needs, and growth potential.