Interest is what a bank pays you for saving, or what you pay it for borrowing, worked out as a percentage. A dividend is what a company pays out of its profits to the people who own its shares. Remember it this way: interest comes from lending, a dividend comes from owning.
The core difference
Interest is a percentage-based payment tied to a loan or savings, while a dividend is a share of a company's profits paid to its shareholders.
- interest — money charged or earned on a loan or savings, calculated as a percentage: The bank charges 6% interest on the loan.
- dividend — a payment made by a company to its shareholders out of its profits: The bank paid out a higher dividend this year after a strong set of results.
How to tell them apart
A simple way to keep them straight: interest is a fixed or agreed rate set in advance, whether you are borrowing or saving, and it applies whether or not anyone made a profit. A dividend, by contrast, depends entirely on company performance — no profit, and there may be no dividend at all that year.
The confusion usually comes up around savings accounts and shares held in the same portfolio: a savings account earns interest, but shares in a company can earn dividends instead, and the two show up differently on a statement.
Where dividend has a second life
Dividend also turns up outside finance to mean a worthwhile benefit from earlier effort, as in years of training paying dividends — a useful reminder that the word's core idea is something divided out and returned.
