Money Interest

Money interest a sum of money paid for the use of another amount of money, called the principal. Banks and other financial institutions pay interest to savers for the use of money deposited in savings accounts; borrowers pay interest for the use of money loaned to them. Interest is usually stated as a yearly rate or percentage of the principal involved. Interest was regarded with disfavor in early times. Aristole thought it evil, a view that persisted through the Middle Ages, religious and secular laws prohibited interest, or usury as it was called. With the growth of commerce and development of banks, usury came to be viewed merely as exorbitant interest and governments began to set limits on interest rates.

Interest and The Economy
The interest rate, the cost of borrowing money, has a profound effect on the performance of the economy and (in the case of U.S. interest rates) may also influence the well being of foreign economies. High interest rates can reduce business investment, raise the cost of mortgages, and even help to push the economy into a recession. At the same time, foreign investors are drawn by the high rates. They buy dollars, pushing up the value of the dollar overseas of payments deficit. Domestic inflation is restrained by high interest rates, but other Western economies suffer because capital is being invested in the United States, and are lost as more imported products are purchased.