What is interest?

What does “interest” mean? You’ll often hear in the news about interest rates, or the interest percent on a credit card…

Interest is the fee you pay to the loaner, the person or institution who gave you the money

Simple interest is a set rate on the original or principal amount of money

In addition to getting the loan paid back, the loaner can also ask for a % on top to turn a nice profit

10% interest would look like someone giving a friend $100 and expecting $100 plus 10% of it (or $10) back! In total, the loaner would get $110 back but only $10 in profit

Interest works both ways

A bank will pay you interest on your money, because they are investing your money in other transactions

Similar to the stock market, you can use a savings account for very slow compound interest payments, or interest on interest

Test your knowledge

What does interest mean?

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When you put money in a savings account, you earn interest

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Why is interest a thing?

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