An interest rate is the cost of borrowing or the return on savings, shown as a percentage of the amount over a period, usually quoted per year.
General information, not financial, legal, or tax advice. Verify current terms and eligibility with the provider before applying.
How an interest rate works
An interest rate is the price of money, expressed as a percentage of an amount over a period of time, most commonly a year. When a business borrows, through a loan, an overdraft, or a credit card, the interest rate is what it pays the lender for the use of the money, added on top of repaying the amount borrowed. When a business holds money in a savings or deposit account, the interest rate is the return the bank pays for holding that balance. The rate is applied to the balance over time, so both the rate and how long the money is borrowed or saved affect the total interest, current as of 9 June 2026.
Fixed and variable rates
Interest rates come in two broad forms. A fixed rate stays the same for an agreed period, so the cost of borrowing or the return on savings is predictable for that time. A variable rate can change, often in line with a reference rate such as a central bank's base rate, so payments or returns can rise or fall. Each has trade offs: a fixed rate gives certainty but may not move with the market, while a variable rate can fall but can also rise. Which applies depends on the product and the agreement with the provider.
Why it matters to a business
The interest rate directly affects the cost of borrowing and the return on cash, so it feeds into a business's cash flow and planning. On borrowing, a higher rate means larger repayments for the same amount, while on savings a higher rate means more return on idle cash. Because rates are quoted in different ways, comparing a headline interest rate alone can mislead. Measures such as the annual percentage rate for borrowing and the annual equivalent rate for savings express the rate on a consistent basis, including how often interest is applied. A business should compare on those measures and confirm the current rate and terms with the provider.
Frequently asked questions
What is an interest rate?
What is the difference between a fixed and a variable interest rate?
How is an interest rate different from APR or AER?
Why does the interest rate matter to a business?
Definitions, fees, features, and eligibility change and vary by region. This page was last reviewed on 9 June 2026. Confirm current terms with the provider before applying.