Glossary
Interest rate
The price a borrower pays for the use of money, stated as a percentage of the amount borrowed, usually per year.
Updated September 15, 2026
An interest rate is what a borrower pays for the use of money, stated as a percent of the amount borrowed, usually per year. You pay interest on a loan or a credit card balance, and you earn it when a bank or a government borrows from you through a savings account or a bond.
$1,000 earning 5 percent a year pays about $50 before compounding. If the interest is compounded, meaning it is added to your balance, the interest itself then earns interest.
Rates appear on loans as APR (annual percentage rate, which adds certain loan fees) and on deposits as APY (annual percentage yield, which includes compounding). A fixed rate does not follow an index; a variable rate does. When rates rise, existing bonds paying lower fixed interest usually fall in price, which matters if sold before maturity.
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Used in these lessons
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How this definition was made
- Written by an AI model (Claude) following Teloria's editorial standard.
- Every factual claim was checked by a separate AI fact-check against official US government and regulator sources.
Official sources consulted
- consumerfinance.gov · /ask-cfpb/what-is-the-difference-between-a-loan-interest-rate-and-the-apr-en-733/
- consumerfinance.gov · /ask-cfpb/what-is-the-difference-between-a-fixed-apr-and-a-variable-apr-en-45/
- consumerfinance.gov · /rules-policy/regulations/1030/2/
- investor.gov · /additional-resources/information/youth/teachers-classroom-resources/what-compound-interest
- investor.gov · /introduction-investing/investing-basics/glossary/compound-interest
- consumerfinance.gov · /rules-policy/regulations/1030/A
- investor.gov · /introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-86
- sec.gov · /investor/alerts/ib_interestraterisk.pdf