GlossaryReference
Interest
The cost of borrowing money, or the reward for lending or saving it.
What Interest means
Interest is a percentage-based fee charged for borrowing money (like a loan or credit card) or paid for letting money sit in a savings account. Borrowed interest works against you: the bank charges it on top of what you repay. Earned interest works for you: banks and investments pay it on your balance. The rate and whether it compounds determine just how much it costs or earns.
Example
Borrowing $1,000 at 18% APR and repaying slowly can cost hundreds in interest, while the same $1,000 in a 4% savings account earns about $40 in a year.
Related terms
Disclaimer
Definitions are simplified for educational use and are not personalized financial, investment, tax or legal advice.