Editing Interest (section)

{{about|the financial term|other uses|Interest (disambiguation)}}
{{pp-pc1|small=yes}}
{{short description|Sum paid for the use of money}}
[[File:Malawi interest rates.JPG|thumb|right|upright=1.3|A bank sign in [[Malawi]] listing the interest rates for deposit accounts at the institution and the base rate for lending money to its customers]]
In [[finance]] and [[economics]], '''interest''' is payment from a [[debtor]] or deposit-taking financial institution to a [[lender]] or depositor of an amount above repayment of the [[principal sum]] (that is, the amount borrowed), at a particular rate.<ref>{{cite web |url=https://en.oxforddictionaries.com/definition/interest |archive-url=https://web.archive.org/web/20171227123013/https://en.oxforddictionaries.com/definition/interest |url-status=dead |archive-date=December 27, 2017 |title= Definition of interest in English|author=<!--Not stated--> |date=<!--Not stated--> |website= English Oxford Living Dictionaries|publisher= Oxford University Press |access-date= 27 December 2017 |quote= Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.}}</ref> It is distinct from a [[fee]] which the borrower may pay to the lender or some third party. It is also distinct from [[dividend]] which is paid by a company to its shareholders (owners) from its [[profit (economics)|profit]] or [[Reserve (accounting)|reserve]], but not at a particular rate decided beforehand, rather on a pro rata basis as a share in the reward gained by [[risk]] taking entrepreneurs when the revenue earned exceeds the total costs.<ref>{{cite web |url=https://www.merriam-webster.com/dictionary/dividend |title=Definition of dividend |author=<!--Not stated--> |date=<!--Not stated--> |website=Merriam Webster |access-date=27 December 2017 |quote=a share in a pro rata distribution (as of profits) to stockholders. |archive-date=27 December 2017 |archive-url=https://web.archive.org/web/20171227122331/https://www.merriam-webster.com/dictionary/dividend |url-status=live }}</ref><ref>{{cite web|url= http://www.economicsonline.co.uk/Business_economics/Profits.html|title= Profit|author= <!--Not stated-->|date= <!--Not stated-->|website= Economics Online|publisher= <!--Not stated-->|access-date= 27 December 2017|quote= <!--Not stated-->|archive-date= 27 December 2017|archive-url= https://web.archive.org/web/20171227123044/http://www.economicsonline.co.uk/Business_economics/Profits.html|url-status= live}}</ref>

For example, a customer would usually pay interest to [[debt|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 (accounting)|profit]], in that interest is received by a lender, whereas profit is received by the [[ownership|owner]] of an [[asset]], [[investment]] or [[business|enterprise]]. (Interest may be part or the whole of the profit on an [[investment]], but the two concepts are distinct from each other from an [[accounting]] perspective.)

The [[interest rate|rate of interest]] is equal to the interest amount paid or received over a particular period divided by the [[principal sum]] borrowed or lent (usually expressed as a percentage).

[[Compound interest]] means that interest is earned on prior interest in addition to the principal. Due to compounding, the total amount of debt grows exponentially, and its mathematical study led to the discovery of the number ''[[e (mathematical constant)|e]]''.<ref>{{cite web|last=O'Connor|first=J J|title=The number ''e''|url=http://www-history.mcs.st-and.ac.uk/PrintHT/e.html|work=MacTutor History of Mathematics|access-date=26 August 2012|archive-date=2 October 2012|archive-url=https://web.archive.org/web/20121002041458/http://www-history.mcs.st-and.ac.uk/PrintHT/e.html|url-status=live}}</ref> In practice, interest is most often calculated on a daily, monthly, or yearly basis, and its impact is influenced greatly by its compounding rate.