How Money Works · 2 min read
Interest: The Price of Money
Simple vs. compound interest, APR vs. APY, and how interest works for you when you save and against you when you borrow.
Interest is the price of using someone else's money. When you borrow, you pay interest. When you save or lend, you earn it.
Simple vs. compound
Simple interest is paid only on the original amount. Compound interest is paid on the original amount plus past interest, so it grows faster over time. Compounding is wonderful in a savings account and painful on a credit card balance.
APR and APY
APR (annual percentage rate) is the yearly cost of borrowing, including most fees. APY (annual percentage yield) shows what savings earn in a year with compounding included. Compare loans by APR and savings accounts by APY.
See compounding in action with our compound interest calculator.
Updated November 15, 2026. General education only, not financial advice.