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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

APRAPYCompound InterestPrincipal

Disclaimer

Definitions are simplified for educational use and are not personalized financial, investment, tax or legal advice.

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Frequently asked questions

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.

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