What is the difference between fixed and variable interest rates?

The distinction between fixed and variable interest rates is fundamental in personal finance, particularly when it comes to loans and investments. Fixed interest rates provide a consistent rate that remains unchanged throughout the entire duration of the loan or investment period. This means that borrowers or investors can predict their payments or returns without worrying about fluctuations in interest rates, allowing for better budgeting and financial planning.

On the other hand, variable interest rates are subject to change over time. They fluctuate based on a benchmark interest rate or index, which can rise or fall. This introduces a level of uncertainty for borrowers or investors, as their payments or returns could vary significantly over the life of the loan or investment.

By understanding the nature of fixed and variable interest rates, individuals can make informed decisions that align with their financial needs and risk tolerance. Option C accurately highlights this key difference, emphasizing that fixed rates remain constant while variable rates can change, which is crucial for effective financial planning.