Personal Finance Term
Interest (Riba)
The cost of borrowing money or the reward for saving it, charged or paid as a percentage of the amount. In Islamic finance this is called riba and is prohibited, which is why Islamic banks use profit-based structures instead.
When you borrow, interest is what the lender charges you on top of the amount borrowed; when you save or deposit, interest is what the bank pays you for the use of your money. It is usually quoted as an annual percentage, and small differences in the rate can add up to large amounts over the life of a loan or a long-term deposit. In Malaysia, conventional loans, fixed deposits, and savings accounts all run on interest.
Under Shariah, charging or paying interest is considered riba and is not allowed, so Malaysia's Islamic banks replace it with profit rates from asset-backed or partnership contracts. For day-to-day decisions, the key idea is that interest works both for and against you: it grows your savings and deposits, but it also makes borrowing more expensive, and high-interest debt such as unpaid credit card balances can compound quickly and become hard to escape.