What Is the Difference Between a Fixed Rate & Flat Rate?

Terms like "fixed rate" and "flat rate" can often confuse consumers. In general terms, a fixed rate is an interest rate that applies to a loan, while a flat rate is a method of payment that someone charges. The two terms apply in different situations, with a fixed rate referring specifically to interest rates, and a flat rate referring to the way someone charges for a service.

Fixed interest rates are typically found in financial instruments that a lender provides to a borrower, such as a mortgage, credit card, municipal bond or certificate of deposit. A $10,000 certificate of deposit, for example, might come with a one-year term and a 3 percent interest rate. This means that at the end of the one-year period the bank will pay the certificate holder $10,300, or the original investment plus 3 percent.

Consumers often come across fixed interest rates as opposed to variable rates. As the names imply, a variable interest rate, also called an adjustable rate, is one that is subject to change over time, while a fixed rate stays the same. For example, a fixed rate credit card will charge a user the same interest rate for a specific period, while the rate on a variable rate card can change depending on the terms of the credit card agreement.

A flat rate, also called a flat fee, is simply a way some service providers charge customers. For example, an accountant might tell you that he'll charge you $250 to prepare your individual tax return. This means that he will perform the specified job at that specific price.

Flat rates are often used whenever a service provider, such as an attorney, accountant or mechanic, provide a specified service. However, providers can also pay based on an hourly rate or even on a contingency rate. For example, a mechanic might tell you that she'll repair your car for $60 an hour. She'll then charge you based on how many hours she took to complete the repair, multiplied by $60.

A contingency fee, on the other hand, is only charged if the provider obtains a certain outcome. For example, an attorney might charge a client on a contingency fee basis. If the attorney wins the case, he will receive a percentage of the winnings, but will not get paid anything if he loses.