What Is Interest Rate?
The percentage a lender charges to borrow money, or that a bank pays on a deposit, per year.
Definition
The interest rate is the cost of borrowing money or the reward for lending it, expressed as a yearly percentage of the principal. For loans, the interest rate is the headline number that drives your monthly payment. For savings, it determines how fast your balance grows. Rates can be fixed (locked for the life of the loan) or variable (tied to a benchmark like the Prime Rate or SOFR and can move). The interest rate is not the same as APR for loans, which also includes fees.
Example
A 30-year fixed mortgage at 6.5% means you pay 6.5% per year on the outstanding balance.
Use It
Try the Loan CalculatorRelated Terms
APR (Annual Percentage Rate)The yearly cost of a loan including interest plus most fees, expressed as a percentage.APY (Annual Percentage Yield)The effective yearly return on a deposit or investment, accounting for compounding.PrincipalThe original loan amount or the remaining balance you owe, separate from interest.