Which of the following best describes variable interest rates?

Variable interest rates are characterized by their potential to fluctuate over time, typically in response to changes in the central bank's monetary policy or other economic factors. When a central bank adjusts its policy rates, banks and lending institutions may pass those changes along to consumers, leading to adjustments in the variable rates applied to loans and credit products. This means that borrowers with variable rates may see their interest payments rise or fall depending on the broader economic environment.

Unlike fixed rates, which remain constant throughout the loan term, variable rates can increase or decrease, impacting the overall cost of borrowing. It's important for borrowers to understand this aspect of variable rates, as it introduces both risk and potential benefits to their financial planning.

In contrast, other options describe incorrect characteristics associated with variable interest rates. For instance, variable rates are not always higher than fixed rates; in fact, they can start lower than fixed rates when the loan is initiated. They also do not remain constant throughout the loan term, nor do they provide guaranteed returns, as those latter aspects are more aligned with fixed-rate products or certain investment vehicles.