Floating interest rate

Okay, let's imagine that you want to borrow some money from the bank. When you borrow money, you have to pay back the money plus a little bit extra. This extra bit is called interest.

Now, there are two different types of interest rates: fixed and floating. We are going to talk about floating interest rates.

A floating interest rate is like a roller coaster. Just like how a roller coaster goes up and down, a floating interest rate can change over time.

For example, let's say you borrow $100 from the bank with a floating interest rate of 2%. This means that you have to pay back the $100 plus an extra $2. But let's say that next year, the interest rate goes up to 5%. This means that now you have to pay back $100 plus an extra $5 instead of $2.

But it's not just the interest rate that can change. Floating interest rates can also change depending on what's happening in the world. For example, if the economy is doing really well, the interest rate might go up. But if the economy is struggling, the interest rate might go down.

So, a floating interest rate is like a ride on a roller coaster where the price you pay (that's the interest rate) can change depending on what's happening in the world.