Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. When you take out a loan, the lender charges interest, which is added to the amount you owe. Conversely, when you deposit money in a bank, the bank pays you interest for using your funds. Interest rates can fluctuate based on various factors, including inflation, central bank policies, and overall economic conditions. Higher interest rates typically make borrowing more expensive, while lower rates encourage spending and investment. Understanding interest rates is essential for managing personal finances effectively.