What is interest?

Interest is the price paid for borrowing or lending money. You either owe interest on money borrowed or earn interest on money on loan to someone else. Any money in a bank account is actually on loan to the bank and it generates interest for the account holder, but it’s usually a very small percentage. Other interest-bearing investments include government bonds. 

On the flip side, interest rates on money that you borrow from a bank, on a credit card, for example, can be quite steep. Short-term loans generally come with higher interest rates than longer-term loans, which includes home loans and vehicle finance.