What is
What is interest?
If you lend money you would expect to receive some return.
If you lend money you would expect to receive some return. If you lend money, you would also hope to get it back.
It is the combination of potential risk and the length of time, that determines the level of interest.
If you lend to a bank you would expect to get it back. If you want the ability of getting it back quickly, as in a current account, you would not expect a high interest rate if any.
However, if you lend cash to a bank but are happy to lock it away for say 12 months, then you would expect to receive a higher interest rate.
You could also lend money to a company e.g., a supermarket. As there is the potential for the supermarket not to pay you back you would expect to get a higher interest rate than a bank.
For example, you can get a higher yield (interest) by investing in a wide range of very large companies. Active fixed income bond fund managers use AI to search out for companies that need money and tactically lend to them. The lower quality the company the higher yield (interest) it will need to pay to attract investors. To spread risk the fixed income bond fund manager tactically invests into up to 1000 companies just in case they do not pay back the investment.
Information, not advice. This guide is general information to help you understand your options. It is not personal advice and not a recommendation to buy, sell or hold any investment. If you are unsure what is right for your circumstances, consider taking regulated financial advice. The value of investments and any income received from them can fall as well as rise, and investors may receive back less than they originally invested. Past performance is not a guide to future returns.