Unit 3 · Level 1 · Interest rates
The price of money
An interest rate is simply a price: the price of using someone else's money for a while. Borrow €10,000 at 5% and you pay €500 a year for the privilege. Lend your savings and you earn that price. Like any price, it balances impatience, risk, and how long the money is tied up.
Free to play. No ads, no token, no account needed to start.
What you get asked
An interest rate is best described as…
It's a price like any other, set where borrowers' demand meets lenders' supply, and nudged hard by the central bank's policy rate.
Match each side of the deal to what the rate means for them.
One number, two perspectives: the rate is the borrower's cost and the saver's reward for postponing spending.
Lenders charge interest partly as payment for taking ___.
The borrower might not pay it back. Interest compensates for default risk, waiting, and inflation eating the repayment.
Why does a risky borrower pay a higher rate than a safe one?
If 1 in 20 similar borrowers defaults, the rate on the other 19 must cover that loss. Risk premium, not personal judgement.
If savings suddenly earn 4% instead of 0%, people tend to…
A higher price of money rewards patience and punishes borrowing. That's the lever central banks pull on the whole economy. More on that soon. 🐜
The rest of this unit
The price of money: how one number ripples through everything you own.