What Is a Long-Term Interest Rate?

An economy is made up of several different factors that influence a nation's money supply or the financial activity of individuals and businesses. Long-term interest rates will generally affect whether or not an individual will purchase an item or make a long-term commitment to debt financing.

Defined

Long-term interest rates are typically associated with investments or financing options lasting 10 years or more. Long-term interest rates may be more stable than short-term interest rates, although they can be subject to change prior to obtaining the investment or financing.

Examples

Treasury bonds, corporate bonds or certificates of deposit are a few examples of investments with long-term interest rates. These rates may be lower than traditional investments depending on the risk associated with the investment. For example, Treasury bonds are typically seen as risk-free investments, resulting in lower long-term interest rates.

Effects

In terms of debt financing, high long-term interest rates will force borrowers to pay more money on the borrowed funds. This will reduce the available money in the market as individuals and business will pay more money to the bank rather than investing in their personal needs or wants.

References

• U.S. Legal: Interest Rates Law & Legal Definition
• Investing Answers: Interest Rate