Interest Rate

An interest rate is the percentage of a loan or deposit charged by a lender to a borrower, or paid by a bank to depositors, typically expressed as an annual percentage of the principal. It is a crucial component of financial transactions, influencing the cost of borrowing and the return on savings.

For example, if you take out a loan of $1,000 with an interest rate of 5% per year, you would pay $50 in interest over one year. In the case of savings, if you deposit $1,000 in a Savings Account with a 2% interest rate, you would earn $20 in interest over a year.

Interest rates can vary based on the type of loan or deposit, the economic environment, and the Creditworthiness of the borrower. In a high-interest rate environment, loans become more expensive, while Savings Accounts yield higher Returns.