Definition of Interest Derived Payment

Interest derived payments are often a safe, effective way to earn a return on your money.

Interest derived, or derived interest, payments are a common form of income for most individuals. Unlike the fancy terminology, the basic idea behind a derived interest payment is simple and familiar.

Interest

When you put your money into a savings account or a purchase of public or private bonds, the bank, government or company that takes your money pays you a small sum every year in return for the freedom to use your money. This small annual payment is called "interest."

Interest Derived Payments

Interest derived payments are those annual interest payments you receive from the bank, government or company. They're called interest derived payments because the money you earn is tied to the money you allowed the bank to use. The interest is "derived" from your investment.

Low Rates

Derived interest tends to accrue at a very low rate. Institutions like banks or bond-issuing governments are safe places to put your money. These institutions offer a low level of interest for your investment. With such a small risk that you will lose your money, the institutions do not need to offer you much interest in return. Therefore, your interest derived payment will be small.

References

• Ask Dr. Math: Loans and Interest