Most people will engage with interest rates when they borrow money or deposit money, like borrowing for a home loan or depositing in a savings account.
Interest rates are normally displayed as p.a. (per annum), which means the amount of interest is charged over 1 year but it's usually calculated daily.
If you're borrowing money you usually want a lower interest rate, but if you're saving money you usually want a higher interest rate.
What are interest rates?
Interest rates show the cost of borrowing money or the reward for saving money, expressed as a percentage of the total amount (the "principal").
For borrowers, such as with home loans, personal loans or credit cards, the interest rate represents the charge you'll incur on top of the amount borrowed.
For savers, such as with savings accounts and term deposits, it's how your money earns growth over time.
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.
How do interest rates work?
Interest rates affect you in two main ways:
Borrowing: If you take out a loan or use a credit card, you'll pay interest on the funds you borrow. A higher rate increases your repayments and total cost.
Saving: When money is held in a savings account or term deposit, the bank pays you interest. A higher rate means your money grows faster.
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 but the RBA is 3.60% (as of September 18th 2025).
Types of interest
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.
What is considered a high interest rate?
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:
Savings account - 5% p.a.
Term deposit - 3.9% p.a. (12-month term)
Credit card - 24-27% p.a.
Personal loan - 25-30% p.a. for standard personal loans. Short term loans can have much higher rates.
Car loan - 18-22% p.a.
Home Loan - 7-8% p.a. (variable rate)
Business loan - 17-25% p.a. (unsecured loan)
These numbers are taken from our database of hundreds of financial products.
What does p.a. mean?
You will often see "p.a." after the percentage symbol in an interest rate. It stands for "per annum" and means the rate is an annual rate.
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.
Finder survey: Do Australians know the difference between a home loan's interest rate and comparison rate?
Response
Yes
59.98%
No
40.02%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
Why is the annual interest rate important?
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).
How is interest calculated?
Interest is calculated differently, depending on whether the interest is simple or compound. The formulas for each are as follows:
Simple interest. You can calculate simple interest by multiplying the principal sum by the rate and the term of the loan. So the formula is: I = P x R x T
To demonstrate, say you have a loan of $30,000 at a rate of 8% p.a. on a loan term of 3 years. The calculation will look as follows: 30,000 x 0.08 x 3 = 7,200Therefore, over the life of the loan, you will pay $7,200 in interest payments.
Compound interest. The formula for compound interest is a little more complicated:A = P(1 + r/n) ^ ntP, once again, is the principal sum of the amount borrowed. r is the annual interest rate and n is the number of times interest is compounded in a year. The term in years is t, and A is the total sum on money accumulated, including interest, after t years. If we use the same amounts as above and imagine that the total amount of times that interest is compounded in a year (n) is 4, the sum is the following:A = 30,000(1 + 0.08/4) ^ (4 x 3)A = 30,000 x 1.02 ^ 12A = 30,000 x (1.27)A = 38,100This means that the total amount repaid over 3 years would be $38,100. If we then subtract the principal from this ($30,000), we can calculate that the total interest over this period with a compound interest rate would be $8,100.
Why do you pay interest?
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.
What is the comparison rate?
The comparison rate is a representative rate that includes both the interest rate and fees. It's useful to look at the comparison rate when considering products as it shows you the true cost of the loan, not just the rate or the fees separately.
What are the different types of interest rates?
There are two main types of interest rates: fixed and variable.
Fixed interest rates. This is a set interest rate that is essentially "locked" for the duration of your loan term. The rate you agree to in your loan contract is guaranteed to remain in place until you close the loan out at the end of the term.
Variable interest rates. This is a rate that may change during your loan term. This may be more likely for some products than for others. For example, personal loans can come with variable interest rates but it is unlikely for the rate to change during the loan term while it's much more likely a home loan with a variable rate will change.
How is interest charged on different financial products?
Interest is calculated and applied differently depending on the product. Here's the quick version.
Credit cards
Two core rates: a purchase rate for everyday spending and a higher cash advance rate for ATM withdrawals.
Typical ranges: basic cards ~8–13% p.a. vs feature or rewards cards ~17–22% p.a.
Promos: some cards offer 0% purchase or balance transfer periods. Check what happens when the promo ends.
Interest-free days: usually up to 55 days on purchases if you pay the full statement balance by the due date. No interest-free days on cash advances.
Set rate vs risk-based: some lenders offer one rate to all approved borrowers. Others advertise a range (for example 7-18% p.a.) and price your loan based on credit profile and risk.
Pre-check: many lenders let you see an estimated rate without a full application or credit score impact.
Home loans
Fixed vs variable: fixed rates are locked for a set term (for example five years). Variable rates move with market conditions and are heavily influenced by the RBA Cash Rate.
How interest accrues: calculated daily on your outstanding balance and charged monthly.
Repayment types: principal and interest reduces your balance and interest costs over time. Interest-only lowers repayments short term but costs more overall.
Savings accounts
You earn interest: variable base rates are usually calculated daily on your balance and paid monthly, which creates compound growth.
When you get the bonus: either for an introductory period or each month you meet set conditions like a minimum deposit or balance increase.
Our expert says: It's not all about the rate
"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:
The actual rate. Look at how competitive the interest rate is when comparing. While the cheapest isn't necessarily the best, a better interest rate can do a lot to save you money in the long run.
The comparison rate. The comparison rate includes both the interest rate and any upfront and ongoing fees. It is more representative of the true cost of the loan and can give you a good idea of how competitive it is overall, so it's useful to compare.
Like-for-like. While comparing interest rates across products is a good idea, make sure the products you are comparing are similar. For example, you might compare one credit card to another one with a much lower interest rate but it doesn't mean it comes with the same features. See what features and benefits the products offer and ensure you are comparing similarly-featured products.
Compare interest rates across loans, credit cards and savings accounts
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How the Finder Score helps you find a better savings account
The Finder Score is a simple score out of 10. The higher a savings account's score, the better we think it is for the average customer.
We score each savings account in our database of hundreds based on a data-driven methodology with 2 main criteria: Does the account offer a high interest rate? And is it easy for savers to actually earn that rate?
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Frequently asked questions about interest rates
Interest rates will differ depending on whether you're borrowing or depositing money, and they will differ again based on the products within those scenarios. However, interest rates are usually set based on the national cash rate which is set by the Reserve Bank of Australia.
A good interest rate is different depending on whether you're looking at a home loan, a personal loan, a credit card or a savings account. It can also vary depending on what specific product you want within those categories.
For example, a fixed rate home loan will have a different good interest rate than a variable rate home loan. The lowest fixed rate home loan on the market at the moment is 5.49%, whereas the lowest variable rate home loan is 5.19%.
Just because a rate is the lowest or highest doesn't mean it's the best either. You also need to consider the features that come with the product.
Whether you need a high or a low interest rate will depend on the type of financial product you're talking about.
If you're looking for a term deposit or savings account, you'll typically want to get the highest interest rate possible, so that your investments make you the most money possible.
If you're looking for a loan or credit car, you'll generally want to aim for lower rates. Paying a lower interest rate on a loan will usually mean you pay less money over the life of the loan.
However, this is not always the case as some loans may have low rates but high fees attached. Always look at the comparison rate when considering the overall cost of a loan.
Elizabeth Barry is an experienced journalist with over 10 years of expertise in personal finance, contributing to outlets like the ABC, Sydney Morning Herald, and 7News. She holds a Master of Arts in Creative Writing and a Bachelor of Arts in Communication from the University of Technology Sydney, and has earned multiple award nominations, including a Highly Commended recognition at the 2017 Lizzies. Elizabeth began her career at Finder in 2013, progressing through roles to become Lead Editor, where she oversaw a wide range of personal finance coverage until 2024.
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Bria Horne was a writer for Finder, with a specialist knowledge of personal loans, car loans and business loans. Originally from the UK, Bria has been a professional personal finance writer in Australia for over 2 years. She has an M.A and B.A in Philosophy and Literature from the University of Sussex, and previously worked on the UK’s leading hospitality publication.
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Addicted to details. We know taking out a personal loan is something you'll be hooked up with for a while. That's why we put hours into research for this guide (and still do at least once a month)
Rates obsessed. Lenders come in all shapes and sizes, that's why we don't just track the big banks, but all the digi folk too. Pretty much everyone but your parents to be honest. 
Cash for whatever you need. Lending rates verified from 180+ products day and night. Whether you're buying a car, rennovating your home or heck just ready to let loose with the spending - we got you.
