interest rate

noun

plural interest rates

: a rate (see rate entry 1 sense 1b) that is used to calculate simple interest or compound interest

an annual interest rate of 5%

:

a

: a rate that a lender (such as a bank) charges a borrower for a loan

Interest rates can be considered the price of borrowing money. "Quite simply, it's the amount charged to a borrower by a lender for use of an asset, expressed as a percentage of the principal value," says Peter C. Earle …

—Dawn Papandrea

Federal student loans have fixed interest rates, which means that the interest rate will stay the same for the life of the loan.

—Zina Kumok

Variable interest rates can go up, increasing your costs. The monthly loan payment will increase and the interest you pay will increase.

—Mark Kantrowitz

b

: a rate that is paid (as by a bank, government, or corporation) to an investor for the use of the money invested

Series I [government] savings bonds … are currently offering an interest rate of 9.62%.

—Darla Mercado

Another option is putting money in CDs, which generally offer higher interest rates than savings accounts.

—Jessica Merritt and Greg Garrison

Since August, … interest rates on corporate bonds have fallen relative to yields on comparable Treasury securities …

—Sewell Chan

Let's say you put $2,000 into an account with a simple interest rate of 2%. At the end of one year, you would earn $40 in interest if you didn't add or take out any money. That's because 2% of $2,000 is $40.

—Kate Rockwood

Take, for example, a person starting with $1,000 in a money market fund earning 5 percent per year. … After one year, the $1,000 has grown to $1,050.95, making the compound interest rate actually 5.095 percent—not 5.00 percent—because interest was also paid on the accumulated interest for each quarter.

—Patricia Barnes-Svarney and Thomas E. Svarney

Word History

First Known Use

1846, in the meaning defined above