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Interest

Interest is the price paid for the use of money lent or deposited for a period and is usually expressed as an annual percentage. Interest is the price of the time value of money: money in hand today is worth more than the same amount in the future.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Worked example
  4. 4.Interpretation
  5. 5.Pitfalls
  6. 6.Official sources
  7. 7.Frequently asked questions

Key Points

  • In Türkiye the anchor for interest rates is the CBRT policy rate; deposit, loan and bond yields form around it and market expectations.
  • When rates rise, deposit and money market returns increase, fixed-coupon bond prices fall and borrowing costs rise; when rates fall the opposite happens.
  • do not overlook the gap between gross interest and net interest after withholding tax.

Formula / Calculation

Simple interest = Principal × Annual rate × (Days / 365). Compound (effective) annual return = (1 + Annual rate / n)^n − 1, where n is how often interest is added to principal each year. Real rate ≈ (1 + Nominal rate) / (1 + Inflation) − 1.

Worked Example

Illustrative

Depositing TRY 100,000 at 40% simple annual interest for 92 days earns gross interest of 100,000 × 0.40 × 92 / 365 ≈ TRY 10,082. If the same 40% rate were compounded four times a year, the effective annual return would be (1 + 0.40 / 4)^4 − 1 ≈ 46.4%.

The figures are hypothetical values chosen to explain the concept; they are not data for any real fund, stock or market.

Interpretation

When rates rise, deposit and money market returns increase, fixed-coupon bond prices fall and borrowing costs rise; when rates fall the opposite happens. Equity valuations are also affected through the discount rate.

Pitfalls

do not overlook the gap between gross interest and net interest after withholding tax. The same annual rate gives different effective returns depending on compounding frequency. A nominal rate that does not exceed inflation does not preserve purchasing power.

Official Sources

Official regulation and sources the definition is based on.

Pages Where This Term Appears

Related Terms

Frequently Asked Questions

Interest is the price paid for the use of money lent or deposited for a period and is usually expressed as an annual percentage.

Simple interest = Principal × Annual rate × (Days / 365). Compound (effective) annual return = (1 + Annual rate / n)^n − 1, where n is how often interest is added to principal each year. Real rate ≈ (1 + Nominal rate) / (1 + Inflation) − 1.

Prepared by: Yatırımcı.AI Research TeamLast reviewed: Method: MethodologyEditorial policy