Define the term 'interest rate.'

The term 'interest rate' refers to the cost of borrowing money or the return on savings, expressed as a percentage. When it comes to loans, the interest rate represents the fee that borrowers pay lenders for the privilege of using their money over a specified period, typically highlighted as a percentage of the principal amount borrowed. Conversely, when individuals save money in a bank or financial institution, the interest rate signifies the percentage they earn on their deposits.

By encompassing both the percentage paid on savings and the percentage charged on loans, the definition accurately captures the dual nature of interest rates in finance. It is essential to understand that the same term applies in both contexts, influencing both consumer behavior in borrowing and saving decisions. The option that defines the interest rate comprehensively includes both facets, making it clear that it serves a critical function in personal finance and investments.