What is the difference between fixed and variable interest rates?

Fixed interest rates remain constant throughout the duration of a loan or investment, meaning that the borrower or investor can plan their payments without worrying about fluctuations in interest costs. This stability is particularly beneficial for those who want predictability in their financial planning, as the payment amount will not change regardless of market conditions.

On the other hand, variable interest rates can fluctuate based on market conditions, which may cause the cost of the loan or investment to increase or decrease over time. This means that while borrowers may initially benefit from lower rates, they also bear the risk of those rates rising, leading to potentially higher payments in the future.

Understanding this key distinction helps individuals make informed decisions about which type of interest rate best suits their financial situation and risk tolerance.