Difference Between Yield and Interest Rate
Yield is another word for return that investors receive from their investments. It is the total return that investors can get from their investment, it includes interest, dividend, capital gain, and so on. It also includes the annual profit that the company receives from holding the investment.
The yield from investment can be negative when the investor receives less than what they have invested. It happened when the securities performance not doing well, it was mostly due to the market price of the investment.
Interest is the amount that banks charge for issuing loans to customers, it is the expense for borrowers who need to bear in order to obtain loans from creditors. The investors will receive the interest rate as an incentive from investing in bonds, loans, and other types of debt instruments.
Interest rate also includes in other investments such as bonds, overdrafts, loans, letters of credit, and so on. It is the return that creditors receive in exchange for allowing the customer to use their money.
Difference Between Yield and Interest rate
|Yield is the total return that investors receive from the investment. It covers the interest rate.||It is just a part of yield, investors receive interest as part of their return.|
|Yield is not fixed, it can be change depend on the market and other factors.||It is the fixed return that investor receive which depend on the contract.|
|Yield usually higher than interest rate as it includes other return that investor receives.||Usually lower than yield as it is only a part of yield.|
|Can be negative when bond price decrease due to the increase of market rate.||Interest rate will never go negative, the investor will not invest in such investments.|