There are many ways to try to achieve greater levels of personal wealth, whether one considers reducing outgoings or increasing income streams. However an understanding of the basics of interest and compound interest may be one critical factor which helps to improve both sides of the equation.
An Interest Rate - the Basics
At the most basic level interest represents the return an investor expects, for a given level of risk taken on an investment. From a personal finance perspective, interest is paid out when one borrows from an investor, such as for a mortgage or personal loan. On the other hand interest is received where the individual lends money, such as placing a deposit in a bank or making an investment in bonds.
Interest is usually expressed as a percentage per annum (APR) and represents either the cost of borrowing, or the reward for investing. Interest rates vary dependent on a number of factors including the base rate set by central banks and monetary authorities and perhaps more importantly from a personal finance perspective, the perceived rate of risk of a loan or investment.