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 repay. Conversely, when you deposit money in a bank, you earn interest on your savings. Interest rates can fluctuate based on economic conditions, such as inflation and monetary policy set by central banks like the Federal Reserve. Higher interest rates typically discourage borrowing and encourage saving, while lower rates can stimulate spending and investment in the economy.