Interest rates show the cost of borrowing money or the reward for saving money, expressed as a percentage of the total amount (the "principal").
Rates are almost always annualised ("p.a." - per annum) but calculated on a daily balance. Understanding them is key to working out the true cost or benefit of financial products.
Interest rates affect you in two main ways:
Rates are influenced by Australia's cash rate set by the Reserve Bank of Australia (RBA), as well as lender policies, borrower creditworthiness, and product type.
The official cash rate set by the RBA is 4.35% (as of September 2026).
There are two types of interest: simple and compound.
Simple interest
This is calculated on the principal sum, or original amount, of a loan or savings/deposit. This form of interest is cheaper if you are paying it down on a loan.
Compound interest
This is calculated on the principal and on the accumulated interest (i.e. "interest on interest"). This form of interest is preferable if you have investments or savings that you are being paid interest for.
The total interest earned or paid depends on the principal sum, the interest rate, whether the interest is simple or compound, the compounding frequency (when it's calculated) and the length of time over which it is lent, borrowed or deposited.
Interest rates can be structured and charged depending on the lender and the product. It's important to know how interest rates work, so you know how to compare products and find the right one for you.
This will depend on the type of financial product you're comparing. You can use the rates below as a guide to what could be considered a "high" rate:
These numbers are taken from our database of hundreds of financial products.
With financial products, annual interest is calculated regularly (usually daily) as you make regular repayments to a loan or put more money into your savings account.
| Response | |
|---|---|
| Yes | 59.98% |
| No | 40.02% |
The annual interest rate is important because it gives you a good idea of how much money you are going to earn from your investments (in the case of savings accounts and term deposits) or how much you are going to pay on your finance (in the case of loans and credit cards).
Interest is calculated differently, depending on whether the interest is simple or compound. The formulas for each are as follows:
You will typically pay interest when you borrow money, although credit cards will often have interest-free periods.
Paying interest on finance, such as credit cards, home, personal, business and car loans, is done for a variety of reasons. Predominantly, it's because lenders are businesses and receiving interest payments for lending money is how they make a profit.
Interest rates are also paid for the convenience of acquiring finance that you did not earn or save and for the inconvenience on the part of the lender.
Interest rates are also charged in case borrowers default on loans. If interest is paid on all loans lent, the risk is mitigated and accounted for and lenders will still make money, even with this expected loss. This is why you might see personalised interest rates for personal loans, as lenders will offer an interest rate based on the borrower's credit profile and risk.
There are two main types of interest rates: fixed and variable.
Interest is calculated and applied differently depending on the product. Here's the quick version.
Personal loan interest rates are annual and can be fixed or variable.
"Although the interest rate is a crucial part of comparing any loan, credit or savings product, it's not the only thing you should be paying attention to.
You might also want a product that has more flexibility, additional features and a great app experience.
With a home loan think about an offset account or extra repayments. With a credit card think about interest-free days and rewards. With a savings account consider the number of hoops you have to jump through to score your interest rate. With a personal loan think about your ability to repay early, the repayment frequency and watch out for additional fees.
It isn't always necessarily better to have the lowest or highest interest rate on the market."
Keep the following in mind when comparing interest rates:
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