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Britannica Money
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    An interest rate symbol stands at the top of a roller coaster.
    interest rate
    yield curve
    yield curve

    interest

    economics
    Also known as: money rate
    Written and fact-checked byThe Editors of Encyclopaedia Britannica
    The Editors of Encyclopaedia Britannica
    Encyclopaedia Britannica's editors oversee subject areas in which they have extensive knowledge, whether from years of experience gained by working on that content or via study for an advanced degree. They write new content and verify and edit content received from contributors.
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      marketing advertisement for hair dressing
      marketing
      An interest rate symbol stands at the top of a roller coaster.
      interest rate
      yield curve
      yield curve

      interest, the price paid for the use of credit or money. It may be expressed either in money terms or as a rate of payment. A brief treatment of interest follows. For full treatment, see capital and interest.

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      Encyclopædia Britannica, Inc.

      Interest may also be viewed as the income derived from the possession of contractual promises from others to pay sums in the future. The question may be asked, “What is the value today of a promise to pay $100 a year from now?” If the answer is $100, then no interest income is generated. Most people, however, would require an inducement to give up $100 today and for the next year. If $5 were sufficient inducement—that is, if they would buy such a promise for $95—then interest income of $5 has been generated at a rate of just over 5 percent.

      Various theories have been developed to account for and justify interest. Among the better known are the time-preference theory of the Austrian, or Marginalist, school of economists, according to which interest is the inducement to engage in time-consuming but more productive activities, and the liquidity-preference theory developed by J.M. Keynes, according to which interest is the inducement to sacrifice a desired degree of liquidity for a nonliquid contractual obligation. It may be mentioned that in Marxist theory interest, like capital itself, is a portion of labour expropriated by the capitalist class by virtue of its political power.