TAILIEUCHUNG - Kingdom of Bahrain Bahrain Monetary Agency Economic Research Directorate: Consumer Information Interest Rates

By encouraging these lending practices, usury ceilings may fail to give consumers the protection and benefits that they were intended to provide. That is, usury laws may actually reduce the amount of credit that is available to low income or inexperienced borrowers. Low-priced credit is not useful to those who cannot meet the requirements for obtaining it. Thus, when lenders ration credit by some means other than price, first-time borrowers, small borrowers, low-income and high-risk borrowers are likely to find it more difficult to obtain credit. The most creditworthy borrowers, on the other hand, may obtain more credit than they would have at normal market interest. | September 2005 1 Kingdom of Bahrain Bahrain Monetary Agency Economic Research Directorate Consumer Information Interest Rates Issue 2 13 10 3 t s 113 13 A 3 03 o3 Art. tP 13 q3 13 3 5 13 0 713 fl3 03 o3 ijO ji 13 Ão1 j3 1 1 jl5 Ahi 1 1 Or t-6 . ỊỊ c 3 Tti-1 à fl D-fl iJju jfr J 1 5 B Bahrain Monetary Agency Economic Research Directorate Contents What are Interest Rates 1 When is an Interest Rate Used 1 How are Interest Rates on Loans Set 2 Calculating the Cost of Borrowing 2 Getting the Best Loan Deal 4 Interest Rates on Deposits 5 Types of Deposit Accounts 5 Getting the Best Deposit Deal 6 Glossary 7 Disclaimer This booklet has been prepared solely to facilitate greater public understanding of banking financial services in the Kingdom of Bahrain. The contents of this booklet do not constitute legal or investment advice and persons in doubt about any matter are encouraged to seek independent professional advice. The BMA shall not be responsible for any loss or other detriment suffered as a result of acting on the information herein. Consumer Information Interest Rates This booklet explains how interest rates are calculated and the types of interest rates a consumer may encounter when dealing with financial service providers in Bahrain. Knowing about interest rates is important to consumers since it tells them how much it costs to borrow money and how much they can earn by depositing their money with a bank. Interest rates only apply to loans and deposits from conventional financial institutions. Islamic financial institutions do not charge or pay interest but have other fees and payments not found in conventional institutions. This booklet looks only at interest rates in conventional banks. There is a Glossary at the back of the booklet explaining some of the commonly used terms. What are Interest Rates An interest rate is a predetermined or negotiated payment made or received for the temporary use of money. A financial institution will charge interest

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