What is an interest rate?

Picture of interest rates
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If you borrow money to purchase a property and the interest rate is 5% a year, it will cost you 5% of the amount borrowed.

For example, if you borrowed £100 with an annual interest rate of 5% you would expect to pay back £105.

If you save money in a savings account with an annual interest rate of 5% a year, you will earn 5% of the money saved annually.  Click here for the Government guidance on savings tax.

Interest rates are usually quoted annually, but not always, so make sure you double check with your lender.