Fixed interest rate

Also called Fixed rate

An interest rate that stays the same for the life of a loan or deposit term, regardless of what market rates do.

What it means

A fixed rate is locked in when the loan or account is opened. On a fixed-rate installment loan, the principal-and-interest payment never changes, which makes budgeting predictable. Fixed rates are common on mortgages, auto loans, federal student loans, personal loans and CDs.

The tradeoff is that lenders build expected future rate changes into the price, so fixed rates often start higher than comparable variable rates. If market rates fall later, a fixed-rate borrower keeps paying the original rate unless they refinance, which has its own costs.

Example

Suppose you take a $200,000, 30-year mortgage at a fixed 6%. Your principal-and-interest payment is about $1,199 every month for all 360 months, even if market rates rise to 8% or fall to 4%.

How it’s used

Long-term loans where payment stability matters, such as mortgages
Locking in a deposit rate with a CD
Borrowing when rates are expected to rise

Strengths and weaknesses

Strengths

Predictable payments for the whole term
Protection if market rates rise
Simpler to understand and compare

Weaknesses

Often starts higher than a variable rate
No automatic benefit if market rates fall
Refinancing to capture lower rates costs money and requires qualifying again

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.