Interest rate
The cost of borrowing money. Central banks such as the Bank of England and the Federal Reserve set a policy rate that influences mortgages, savings and company borrowing.
In plain English
An interest rate is the price of money. If you borrow, you pay it. If you save, you earn it. It is usually shown as a percentage per year.
In the UK, the Bank of England sets the “Bank Rate”. Banks use it as a starting point for what they charge on loans and mortgages and what they pay on savings accounts.
An everyday example
If you borrow £1,000 at 5% a year, you owe about £50 in interest after a year. If you save £1,000 at 4%, you earn about £40.
Why it matters for investors
Interest rates affect almost every price in markets. Higher rates make borrowing more expensive, which can slow spending and cool inflation. They also make safe savings more attractive, so investors may pay less for shares and bonds. Lower rates tend to do the opposite.
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Related terms
Education only, not financial advice. Examples are simplified and use illustrative numbers.