What is interest and how does it work?

Key takeaways Interest can be charged when you borrow money or earned when you save. When you charge something on a credit card or take out a loan from a financial institution (student loan, auto loan, mortgage, etc.), you’re charged interest for borrowing that money. You can also earn interest in the form of a yield on interest-bearing accounts, such as savings accounts. Interest is either the cost of borrowing money or the reward for saving or investing it — depending on which side of the transa ...