Interest is what you pay to borrow money – or what someone pays you to borrow money from you. When you take out a loan from a bank, you have to pay a set amount of money (like, say, 3% per year) for the privilege of borrowing that money – that’s interest. Equally, when you buy a bond, you are effectively lending money to a company or government and, as such, are paid interest each year by the company or government in order to compensate you for lending it your money.

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