Ah interest! A simple concept, but a powerful one.
Put simply: interest is the reward for saving – and the cost of borrowing.
Put money in a savings account, and you get paid extra money on top, known as ‘interest’. That’s because the bank pays you interest for allowing them to use your cash.
Interest is paid as a percentage of the money you put in the account. So for example, if the interest on your £100 savings is 4%, you will get £4 added. That percentage is known as the interest rate, and the longer you leave money in your account, the more interest you earn. Good times!
However, interest works both ways. It’s great when you’re saving, but not so great if you’re borrowing, because then you have to pay someone interest for using their money.