Loans & Credit

What Is an Interest Rate?

An interest rate is the percentage a lender charges for borrowing money, or the percentage a bank pays on deposits, usually stated per year. It is applied to the principal (the amount borrowed or saved) to calculate the interest owed or earned over a period.

How Interest Rates Work

If you borrow 1,000 at a 5% annual interest rate, the cost of borrowing for one year is roughly 50, depending on how often interest is calculated. For savings, the same rate works in reverse: the bank pays you for using your money.

Fixed vs. Variable Rates

A fixed rate stays the same for the life of the loan or deposit. A variable (or adjustable) rate can change over time, usually in line with a benchmark rate set by the market or a central bank.

Simple vs. Compound Interest

With simple interest, the rate applies only to the original principal. With compound interest, it also applies to interest that has already been added, so the balance grows faster.

🧮 Calculate It Yourself

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💳 Loan Calculator (EMI) Works for any loan type — find your monthly payment and total interest. Calculate → 💹 Simple Interest Calculator Interest and total amount for any principal, rate, and time — any currency. Calculate → 📈 Compound Interest Calculator See how your money grows with compound interest and regular monthly contributions. Calculate →

🔗 Related Terms

APR (Annual Percentage Rate) Simple Interest Compound Interest Principal APY (Annual Percentage Yield)

More Loans & Credit Terms

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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.