Interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum.

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders.

A creditor is a party that has a claim on the services of a second party.

Simple Interest Formula by The Organic Chemistry Tutor


It is distinct from a fee which the borrower may pay the lender or some third party.

A fee is the price one pays as remuneration for rights or services.

Simple Interest Formula | MathHelp.com by MathHelp.com


For example, a customer would usually pay interest to borrow from a bank, so they pay the bank an amount which is more than the amount they borrowed; or a customer may earn interest on their savings, and so they may withdraw more than they originally deposited.


In the case of savings, the customer is the lender, and the bank plays the role of the borrower.


Interest differs from profit, in that interest is received by a lender, whereas profit is received by the owner of an asset, investment or enterprise.

To invest is to allocate money in the expectation of some benefit in the future.


The rate of interest is equal to the interest amount paid or received over a particular period divided by the principal sum borrowed or lent.


Compound interest means that interest is earned on prior interest in addition to the principal.

Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.


Due to compounding, the total amount of debt grows exponentially, and its mathematical study led to the discovery of the number e. In practice, interest is most often calculated on a daily, monthly, or yearly basis, and its impact is influenced greatly by its compounding rate.

Borrow or borrowing can mean: to receive from somebody temporarily, expecting to return it.

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