When you borrow money from a bank, the bank charges interest as payment for letting you use their money. The amount of interest charged is expressed as a percentage of the principal – or the total amount of the loan. The same works in the opposite way. When you put money in your savings account, you receive interest payments in exchange for letting the bank use your money while it’s sitting in your account.
You’ve probably seen interest rates advertised using the acronym APR. APR stands for annual percentage rate and it takes into account both the interest rate itself as well as lender fees. When borrowing and lending money, understanding the interest rate and its impact is critical to ensuring you make an informed decision. When selecting a mortgage, for example, interest rates can have a significant impact on how much you pay in your mortgage payments each month.
