What is the difference between fixed and variable interest rates?
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A fixed interest rate remains the same throughout the life of a loan or investment, providing borrowers and investors with predictability and stability. With a fixed rate, the monthly payment or return does not change, regardless of market conditions. In contrast, a variable interest rate can fluctuate based on changes in an underlying benchmark rate, such as the LIBOR or the prime rate. Variable rates can lead to lower initial payments but carry the risk of higher costs if interest rates rise. While fixed rates are often preferred for their stability, variable rates can be beneficial when rates are low and expected to remain so.