Which statement about interest is true?

• A. Interest is only earned on savings; it is never a cost.
• B. Interest is always a separate fee.
• C. Interest can be earned on savings or charged on borrowing.
• D. Interest is the total money you have in your accounts.

Answer: (C)

Interest is the price you pay to borrow money or the return you earn from saving money. It can be earned on savings when the bank pays you interest for keeping your money there, and it can be charged on borrowing when a lender adds interest to the amount you borrow as the cost of using their funds. This means interest isn’t only something you earn or only a separate fee; it describes both the benefit of saving and the cost of borrowing. For example, saving $100 with a 2% interest rate earns you $2, while borrowing $1,000 at 5% interest means paying $50 over a year. That combination is what makes the statement true.