Math in daily life :) When you put money in a savings account, the bank pays you interest according to what you deposit. In effect, the bank is paying you for the privilege of "borrowing" your money. The same is true for the interest you pay on a loan you take from the bank or the money you "borrow" from a credit card.

Interest is expressed as a rate, such as 3% or 18%. The dollar amount of the interest you earn on a savings account is figured by multiplying the money you deposit (called the principal) by the rate of interest. If you have $100 in an account that pays only 1% interest, you'll only earn $1 in interest. If you shop around for an account that pays 5% interest, you'll earn five times that amount.

In banking, interest is calculated and added at the end of a certain time period. You might have a savings account that offers a 3% interest rate annually. At the end of each year, the bank multiplies the principal (the amount in the account) by the interest rate of 3% to compute what you have earned in interest.