rate of interest
Rate of Interest is the price of money, the percentage a lender charges a borrower, or pays a saver, for the use of funds over time.
In plain English
Aunty Chinwe runs a provision store in Onitsha, and every December she takes a loan from a cooperative to restock for the Christmas rush.
One year the cooperative told her the rate of interest was 3 percent a month, and she nearly fainted, because 3 percent a month is not the same as 3 percent a year, it adds up to well over 36 percent by December.
That number, whether it is called 3 percent or 36 percent, is the rate of interest, the fee you pay for borrowing someone else's money, or the reward you earn for lending yours to a bank.
It works both ways. When Aunty Chinwe borrows, she pays interest. When she later puts her profit into a savings account, the bank pays her interest, usually a much smaller rate than what she paid to borrow.
In London, a Nigerian nurse sending money home might also notice interest rates in a different way, watching how the Bank of England's rate affects her mortgage repayment and, indirectly, how much is left over to send to her mother in Enugu.
The rate of interest is never just a number on paper, it decides how far your money stretches, whether a loan is worth taking, and whether saving is worth the wait.
A trader borrows ₦200,000 at a rate of interest of 5 percent per month. After one month she owes ₦210,000, and if she cannot repay quickly, that 5 percent keeps compounding on the new balance.
Questions people ask
What is a good rate of interest for a savings account in Nigeria?
Anything that beats inflation is worth celebrating, but most Nigerian savings accounts pay well below inflation, so many people look to fixed deposits or treasury bills for a better rate.
Why do loan rates in Nigeria feel so high compared to the UK?
Nigerian lenders price in higher risk, inflation, and currency wahala, while UK rates are shaped by a more stable economy and a central bank that has kept inflation lower for longer.
Is a monthly interest rate always worse than an annual one?
Not always, but you must convert it to a yearly figure to compare properly, because a small sounding monthly rate can calmly become a huge yearly cost.
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