Investing term
What is Interest rate?
The cost of borrowing money, or the reward for lending it, expressed as a percentage.
An interest rate is the price of money — what you pay to borrow it or earn to lend it, expressed as an annual percentage. Every loan, savings account, and bond has one, and behind them all sits the central-bank policy rate, the benchmark that anchors the cost of money across the whole economy.
Rates ripple through everything. They set the cost of mortgages and credit cards, the return on savings and new bonds, and the discount rate investors use to value future profits. When a central bank raises or lowers its rate, borrowing costs, savings yields, and asset prices tend to move with it — which is why rate decisions are among the most closely watched events in finance.
When central banks lift rates, borrowing costs more, savings pay more, and asset prices tend to dip because future profits are discounted harder.
For example
At 20% interest, $1,000 of credit-card debt costs $200 a year — which is why clearing high-rate debt often beats any investment return.
Learn it by doing
That's Interest rate in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 1, Money, Goals & Your Financial Foundation).
Try the free lesson →Why it matters to you
Interest rates are the gravity of the financial world: when they rise, they pull on the price of nearly every asset at once. Higher rates make safe savings more attractive and borrowing dearer, which slows spending and tends to weigh on stock and bond prices; lower rates do the reverse. That one lever moves so much explains why markets react so sharply to central-bank meetings, and why the same investment can look cheap or dear depending on the rate backdrop.
⚠ Assuming today's rate is permanent
People lock in decisions — a mortgage, a long bond, a savings plan — as if the current rate will last. Rates move in long cycles, and a rate that looks high or low today can reverse within a few years. Building a plan that only works at one particular rate leaves you exposed when the cycle turns.