For savings, an interest rate refers to the percentage at which a financial institution or lender compensates you for keeping your money with them.
It represents the cost of borrowing money or the return earned on your savings, expressed as a percentage of the amount invested or borrowed.
Interest Rate Example:
For example, let's say you have £1,000 in a savings account with an interest rate of 2%. This means that over a specific period, typically a year, your savings will grow by 2% or £20.
The interest rate determines the rate at which your money increases over time. Higher interest rates can lead to faster growth of your savings, while lower interest rates may result in slower growth.