What is Interest and Interest Rate?

 

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

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.

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

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.

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

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

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

You’re welcome.

Remember, finance is your friend!

Podcast: What is Interest and Interest Rate?

11 Key Personal Finance Concepts You Must Know for Financial Success

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