What is Interest and Interest Rate?

 

Sooper Cooper

Howdy Wall Street Willy! I’ve heard that the interest rates are really low right now. But what is interest anyway?

Wall Street Willy

Well, you can think of interest like rent on your money, just like you pay rent for an apartment.

The people who rent it to you are letting you use the apartment for money (rent), and you let the bank use your money for extra money, which is called interest.

Sooper Cooper

Oh! But how is the interest calculated? Like, how do you know how much interest you’re supposed to get?

Wall Street Willy

Well, it’s a percentage of what you keep put in the bank account, each year.

For example, if you keep $100 in your bank account at a 10% interest rate, that means you’ll get $10 at the end of the year.

Sooper Cooper

Oh, that’s really good. But, is it always 10%?

Wall Street Willy

No, it changes a little bit every day based on the economy and other factors.

Sooper Cooper

Okay. Well, thank you very much for telling me what an interest rate is.

Wall Street Willy

You’re welcome.

Remember, finance is your friend!

Post Author: easypf

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