what is interest income?

Question

what is interest income. please define at grade eleven level, thx

Answer 1

Generally, it's interest earned on deposits. You give money to someone else (like a bank), and they pay you a certain amount (interest) for getting to use your money until you take it back.

The amount of interest earned is usually associated with the amount of risk assumed, e.g., a checking account will hardly pay you any interest beacause you're not promising to keep the money there for any length of time and you're taking on no risk - your deposits are federally insured. But a corporate junk bond (debt sold by a company that is below investment grade) will pay a high yield (interest) because there's a chance the company will go out of business and you'll never get paid back interest or even the money you initially gave them (principal).

Hope that helps.

Answer 2

Income is money that comes into your life. There are 2 kinds of income: active and passive.

Active income includes things like wages, bonuses - money that you work for.

Passive income includes things like rent, bank interest, stock dividends, etc - money that comes to you but you did not WORK for it.

Interest from banks, financial institutions, etc is called interest income, and is usually passive. Think of it as the bank "renting" your money - you leave money with the bank so they can use it to make loans ( for which they get huge fees and profit ), and they give you some of that back in the form of interest.

So, a bank will take your money, give you 4% a year for its use, then turn around and lend it to a developer, a homeowner, or a company for 10-15%. Thats how banks make their money.

Answer 3

Say you have a savings account, and at the end of the year, it earned $20 in interest. That $20 is interest income. It has to be added to your earnings from your W-2 or 1099 when filing your taxes.

Answer 4

Interest is income from any debt security or deposit. So income from a savings account or CD or bond is interest.
Its what a borrower has to pay a lender for the use of money. To the lender, that is interest income.

By comparison, income from a mutual fund or stock investment is a dividend. That is a payment from any equity security, including money market and bond mutual funds.

Answer 5

To put it simply : it is interest made off of any money in a savings account or investment account.

If you have a savings account your money makes interest as it sits there. This interest is called interest income when it comes to tax time.

Another way to put it is : It is YOUR MONEY making money all by itself. This one way the rich get richer... have money make more money so you can be doing other things.

: )

Hope this helped !!

Answer 6

Well now think about it. Ask yourself what "interest" is. Surely you know what that is, as it pertains to money in the bank. It is interest money paid to the account. Thus, interest income should be self-explanatory.

Answer 7

Do you mean for US Federal Income Tax purposes?