$30 of interest is an amount; 3% is a rate
Suppose a bank promises $30 for keeping $1,000 in an account for a year. This is an invented example, with no tax or fees. The starting $1,000 is the principal. The extra $30 is interest. One percent means one part in a hundred: $10 here. Three of those parts is $30, so the annual interest rate is 3%.
To calculate it, write 3% as 0.03 and multiply: $1,000 × 0.03 = $30. This is simple interest, meaning only the starting deposit earns interest. With $2,000, the same rate produces $60. For half a year it would produce about half as much. An actual account sets its rules for counting days and paying interest.
An account advertising 3% a year might pay interest monthly. That payment schedule does not turn the annual rate into 3% a month. The rate and the dates on which interest reaches your account answer separate questions; both belong in the calculation.
If you leave the interest in the account, it can earn interest too. Keep the same 3% annual rate for two years and add each year's interest to the deposit. After the first year you have $1,030. After the second, $1,030 × 1.03 = $1,060.90.
The extra 90 cents comes from the first year's $30 earning interest. Without reinvestment, two years of simple interest on the original $1,000 would total $60.
Here, interest is added once a year and the rate stays the same in year two. An actual deposit may add interest more often or renew at a different rate. Taxes and fees also affect the amount you keep, so its final balance may differ from this simplified example.
For a loan, you pay interest instead of receiving it. A rate lets you compare that cost with the amount borrowed; the actual bill also depends on the balance, time and repayment method.
Who uses the policy rate in the news?
A bank needs money before it can lend to a customer, and banks also deal with the central bank. A central bank is the institution that uses tools such as interest rates to influence how quickly prices rise and how much people borrow and spend. That work is called monetary policy. A policy rate is a rate it sets for that purpose, used in transactions involving financial institutions. Its effects can later reach household loans and savings.
South Korea is one example. The Bank of Korea’s Monetary Policy Board decides the Base Rate. The Bank’s official description of the Base Rate (Korean) explains its use in lending, deposits and repurchase transactions involving financial institutions. A repurchase transaction means buying or selling a financial claim, such as a bond promising repayment, with an agreement to reverse the deal later. These dealings differ from your one-year bank deposit.
Policy decisions take account of inflation, economic activity and financial conditions. Raising rates can make borrowing more expensive and restrain spending; lowering them can ease that pressure. The effects take time, and their size depends on the economy and the contracts already in place.
A rate “hold” means the policy rate stays at its previous level. A rate increase raises it; a cut lowers it. The hold does not require a home loan, savings account or financial-market rate to stay unchanged.
Two decisions to hold a rate can have different reasons. The decision statement may discuss inflation risks, slowing growth or financial conditions. The number alone does not tell you which concern mattered most.
Use the South Korea detail panel to check the instrument, observation date and source status. The linked BIS series does not explain the decision; for that, read the relevant Bank of Korea decision statement separately.
A cut can reach a new loan before an existing one
The extra money you pay on a loan, or receive on savings, is calculated using that product’s agreed rate. A personal loan also reflects what the bank pays to obtain money and the chance that the borrower will not repay. These are its funding costs and credit risk. The central bank’s rate affects this process; it does not write every customer’s contract.
In the table, a market rate comes from transactions in which money is lent or financial claims are bought and sold. A bond is one such claim: its issuer promises to repay borrowed money under stated terms. The maturity is when money is due back. Banks pay for money from savers and these markets. The loan’s length, the risk of nonpayment, and property pledged as backup, called collateral, also affect the rate offered to a customer. Commercial decisions differ between banks too.
Scroll wide tables sideways. Keyboard: focus the table, then use the arrow keys.
| Type | What sets it? | What to check |
|---|---|---|
| Policy rate | Central bank policy decisions and operations | The instrument name and effective date |
| Market rate | Trading, funding conditions and expectations | The maturity and risk of the transaction |
| Savings or loan rate | The financial provider and product contract | Fees, payment terms and any reset date |
Markets need not wait for the announcement. When traders expect a rate cut, some market rates can move in advance, followed by rates on new bank products. Changing expectations about inflation or funding conditions can also move market rates while the central bank keeps its rate on hold.
An existing fixed-rate loan usually keeps its agreed rate for the fixed period. A variable-rate loan uses a benchmark, a reference rate named in the contract. Its rate can change at the next scheduled reset, when the lender recalculates it. A policy cut today does not guarantee a smaller payment next month. New loan offers and existing contracts may change at different times.
To find out when your own payment changes, put the contract beside the lender's latest rate notice. The contract sets the adjustment rules; the notice gives the rate and start date being applied.
The US has a target range; the ECB publishes three rates
Two sources can report different figures for the same country's policy rate on the same day. One may quote a target, another a rate charged through a central bank facility, and another a rate from actual trading. The full name tells you which figure you are looking at.
The Federal Reserve, the US central bank, sets a target range for the federal funds rate, which concerns money lent between banks until the next day. A range has a lower and an upper end. FURRY RATES shows both first, then uses their average for map colours and country-to-country subtraction. That average is labelled “comparison midpoint.”
If a hypothetical range were 2.00–2.50%, its midpoint would be (2.00 + 2.50) ÷ 2 = 2.25%. These example figures are not a statement of the current US rate.
The midpoint is different from the effective federal funds rate (EFFR). The New York Fed calculates EFFR from reported overnight federal funds transactions, in which money is borrowed until the next day. It uses a volume-weighted median: the middle rate when transactions are weighted by how much money changed hands. These figures serve different purposes: the target sets policy, the midpoint supports comparison, and EFFR describes transactions. They can therefore differ on the same date. If the source range is missing, its boundaries cannot be reconstructed from the midpoint.
The European Central Bank, or ECB, publishes three rates. The deposit facility rate (DFR) applies when banks leave money overnight. Main refinancing operations (MRO) concern banks obtaining money through regular lending operations. The marginal lending facility rate (MLF) applies when banks borrow overnight against pledged property or financial claims, called collateral. These are bank dealings with the euro area’s central-bank system, rather than rates on an individual’s euro account or loan.
FURRY RATES keeps MRO as its euro-area comparison value for continuity with its existing method, while displaying DFR and MLF separately. The ECB uses DFR to steer borrowing and spending conditions, so a news report focusing on DFR can show a different figure from the map. Compare the column names in the ECB's official table and the Germany / euro-area detail panel. The comparison guide explains the choice in more detail.
From 1% to 1.25% is a rise of 0.25 percentage points
A rate level uses %. Subtracting one rate level from another gives a difference in percentage points, abbreviated pp or written %p on this site. If a hypothetical rate rises from 1% to 1.25%, the difference is 1.25 − 1 = 0.25 percentage points = 25 basis points. One basis point, or bp, is 0.01 percentage points.
You could also calculate 0.25 ÷ 1 = 25%, measuring the increase relative to the old rate. That is why “up by 25%” and “up by 25 basis points” mean different things. The latter gives the difference between the rate levels directly.
For the $1,000 deposit held for one year at simple interest, with no taxes or fees, a 1% rate pays $10 and a 1.25% rate pays $12.50. The extra $2.50 is a 25% increase in interest income. It does not mean the principal grew by 25%.
The South Korea–US comparison subtracts two policy-rate comparison values. It does not calculate the interest on a bank product or the result of exchanging currencies. Those require the actual product rate, time period and costs.
Read the date label as well. A decision date is when a policy decision was made; an effective date is when it starts to apply; an observation date belongs to a statistical series. The last successful check records when the stored value was checked against its source. A rate can remain unchanged for months while being checked recently. A new decision can also be announced before it takes effect.
The dollar amounts and example rates in this guide are hypothetical calculations by FURRY RATES. They explain the concepts and do not describe an available product or an investment recommendation.
Sources and assumptions
These links identify the specific policy instruments discussed above. The deposits, rates and calculations are fictional examples, not current offers. See our editorial policy.
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