What is interest rate in banking?

Interest rate is the amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal, or original amount borrowed; it can also be described alternatively as the cost to borrow money. For instance, an 8% interest rate for borrowing $100 a year will obligate a person to pay $108 at year-end.

How is interest calculated?

There are two methods for calculating interest. Simple interest is calculated as a percentage of principal only, while compound interest is calculated as a percentage of the principal along with any accrued interest. As a result of this compounding behavior, interest earned by lenders subsequently earns interest over time.

What is interest rate & how does it work?

An interest rate is a percentage that is charged by a lender to a borrower for an amount of money. This translates as a cost of borrowing. You may be borrowing the money from someone (loan) or lending it to them (savings or investment). For common types of savings accounts and investments, you may be earning compound interest on your balance.