Interest
The price of using someone else's money — paid by borrowers, earned by lenders.
Rent on money. Someone else’s money is useful to you now, and interest is what that usefulness costs.
The direction is the only thing that changes. Borrow, and you pay it. Lend, and you earn it — and a savings account is lending, whatever it feels like. Your money is not sitting in a drawer; the bank is using it, and interest is your share.
The rate is where all the meaning lives. The same word covers 3% on savings and 24% on a credit card, and treating those as the same category is how debt quietly becomes unmanageable.
Two habits protect you. Always check the period — a rate quoted monthly is roughly twelve times what it appears, and slightly worse once compounded. And find out whether interest is charged on the original amount or the falling balance, because the same headline rate can mean very different totals.
Simple interest is charged on the original sum only. Compound interest is charged on the sum plus everything it has already accrued, which is the version that runs away from you.
Words on this page
- Share — A small piece of ownership in a company, including a claim on its profits.
- Compound interest — Interest earned on your interest, so growth accelerates instead of staying flat.
Related terms
Covered properly in Learn.
This term appears in the glossary of The Quiet Fortune, Volume I.