Interest is the fee paid by a borrower to a lender for using their money

 
Interest is usually expressed as a percentage of the amount borrowed/lent (i.e. the annual interest rate).
 
It helps to think of loans and savings composed of 2 parts:

• The original amount borrowed or deposited – known as the ‘principal’

• The interest accrued since the start of the loan or savings account

For the borrower

Interest is the cost you pay for using the money.

When you take out a loan, you will pay back:

• The principal amount you borrowed

• The cost of borrowing the money  (i.e. interest accrued since you took out the loan)

• Any additional charges for financing the debt  (e.g. administration fees)

For the lender

Interest is the income you earn from lending the money.
 
 

As a saver, or when your bank account is in credit

You earn interest from leaving money in your account – in effect, you ‘lend’ this money to the bank and they pay you interest for using it.

You will get back:

• The principal amount you deposited

• Income from ‘lending’ (i.e. interest accrued since you opened the savings or bank account)