What is adjusted interest rate? This is a question that customers are interested in in the process of borrowing money and depositing at banks. Currently, there are two basic interest rate methods that are used a lot: fixed interest rate and adjustable interest rate (floating interest rate). However, when saving long-term savings, banks will often advise using use adjustable interest rates.
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So What is adjusted interest rate?? Let’s find out through the content of the article.
you are watching: What is adjusted interest rate? Features and calculation formula
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What is adjusted interest rate?
Adjusted interest rate is an interest rate that is changed and adjusted continuously according to the changing situation of the market. Banks and customers will base on the provisions of law to exchange the choice of term and appropriate adjustment level.
Features of adjustable interest rate
Before taking a loan or depositing a savings account, customers need to carefully understand the characteristics of the method What is adjusted interest rate? to be able to make the most accurate and optimal choices for you. When choosing an adjustable interest rate, it is necessary to pay attention to the following contents:
- Interest rates will be changed periodically, it can be every 3 months, 6 months or 1 year
- The bank and the borrower/saver will talk to each other and come up with an agreement on the term and the adjustment amount, all of which will be clearly stated in the contract.
- This method will be affected by market interest rates. If the market interest rate increases, the interest rate will increase and vice versa, if the market interest rate decreases, the interest rate will decrease
- The adjusted interest rate is adjusted for inflation and the reference rate, all of which are based on the first-period interest rate.
- This is the interest rate method commonly applied to long-term savings accounts, most commercial banks have an adjustable interest rate.
- Borrowers will benefit when market interest rates decrease, savings customers will benefit when market interest rates rise and vice versa.
- With the adjusted interest rate method, apart from the first period, it is difficult for customers to predict the following periods
How to calculate adjusted interest rate
Although this interest rate is always subject to change based on market fluctuations, to ensure the interests of both borrowers and lenders, there are still separate regulations and calculation formulas. Specifically it is as follows:
Adjusted interest rate = Reference rate + Margin
- The reference interest rate is based on the loan period. If the term is less than 12 months, it will be calculated as interest on deposits under 12 months. As for the long term, over 12 months, it will be calculated as interest on 13 or 24 month term deposit.
- Borrowing margin is defined as the difference between input and output interest rates, or the difference between lending rates and deposit mobilization rates. The higher this difference is, the more profit the Bank earns.
Find out what is the base interest rate?
In which case should you choose a fixed interest rate and an adjustable interest rate?
Fixed interest rate
For businesses and companies that need long-term loans, they will often choose a fixed interest rate. Since the interest rate remains constant for a long time, a company or business can clearly determine how much interest it needs to pay for each period, thereby making a long-term financial plan that is not affected. influenced by the market, can manage a high level of risk.
Adjustable interest rate
For businesses, companies, and individual customers who need long-term savings or short-term loans, when they know well about What is adjusted interest rate? then you will quickly choose this interest rate method.
This will be the optimal choice if you borrow money and grasp the trend of interest rate changes, thereby making timely maturity decisions before market interest rates rise, which means you will have to pay less debt than in the first period. If you have a savings account, this form will bring great benefits if the market interest rate tends to increase.
In short, once you understand adjustable interest rate and its outstanding features, hope you will make wise decisions when choosing the right interest rate method for your loan or savings needs for companies, businesses and yourself.
Information edited by: banktop.vn
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