Korko

Korko is a Finnish financial term meaning interest—the price paid for borrowing money or the return earned from lending, typically expressed as a percentage of the loan principal per year. In everyday use, korko refers to the annual interest rate on loans and deposits, but it can be quoted for other periods as well.

There are several ways to measure and present korko. The nominal interest rate is the stated annual rate; the effective annual rate accounts for compounding; and the real interest rate adjusts the nominal rate for inflation. Interest can be fixed (kiinteä korko) or variable (muuttuva korko). Simple interest accrues only on the principal, while compound interest accrues on both principal and already accumulated interest (korkoa korolle).

Applications and impact: Korko is a fundamental concept in banking, mortgages, consumer credit, savings, and bonds. Lenders charge korko to cover risk and opportunity cost; savers earn korko on their deposits. Central banks influence korko indirectly through policy rates, which affect borrowing costs, inflation, and economic activity. Individual decisions, such as taking a loan or choosing a savings product, depend heavily on korko levels and expectations of future rate movements.