What is the difference between a forward rate and a spot rate?

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Yuval Bar-Or, Finance Professor; Financial Literacy Expert

@PillarsOWealth • 07/29/16 This answer was first published on 07/29/16. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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A spot rate is the price or rate that applies for settling a transaction NOW. For example, if you borrow money now to be repaid in a year, the one-year spot rate would apply.
A forward rate is the price or rate that applies to a transaction that will take place in the FUTURE. For example, the interest rate you'd have to pay if you borrowed a year from now and paid off the loan one year after that (i.e., two years from now).

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