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8 Facts About Interest

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1

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

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2

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

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3

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.

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

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5

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.

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6

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.

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7

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.

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8

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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