How is the term "interest rate" defined?

The term "interest rate" is defined as the percentage of a loan or savings account earned or paid as interest. This concept plays a crucial role in finance, as it determines how much one will pay when borrowing money or how much one will earn when saving or investing.

For loans, the interest rate indicates the cost of borrowing, allowing lenders to charge fees for the risk they take when offering credit. Conversely, for savings accounts or investments, the interest rate reflects the return earned on deposits. This percentage helps individuals and businesses make informed decisions regarding loans, savings, and investments based on the potential costs or earnings associated with interest. Understanding this definition is essential for managing personal finances effectively.