Why Interest Rocks

Thu, 22 Dec 2011

Did you know there’s another way to make money besides working for it? If you want your money to grow, you need to understand the concept of interest.

Earning Interest

When you deposit your money into a savings account, banks will pay you to keep it there. That rocks. Why do they do this? Well, they need to use your money to make loans to other people. Banks will pay you a percentage of the amount of money you have deposited, to encourage you to keep it there. There’s two forms of interest, simple interest and compounding interest. For this lesson, we’ll stick to simple interest.


Calculating Simple Interest

To figure out how much money you can make, use this formula: I = P x R x T (Interest = Principle x Rate x Time)


The amount of interest you can earn depends upon these three variables. For example, if you deposit $100 (principle) and are getting an interest rate of 4% for one year, you would make $4. Now your balance in the bank would be $104.00. You just made money and didn’t have to do any extra work, that rocks! Try out this simple interest calculatorThis is a third party link. Please review the third party content guidelines by clicking here for more details. to see other scenarios.


Start Now

Getting started early is key and can make a significant difference. Even if your only money now is an allowance from your parents, you can get in the habit of saving and earning interest so that you money goes further. Opening up an account while you’re young is a great idea! If you start when you’re young, you not only will build good habits, but you’ll earn more over time. See how teens can become millionaires here.This is a third party link. Please review the third party content guidelines by clicking here for more details.


Make Savings A Habit

Plan routine trips to the bank to deposit money, or set up a direct deposit to your savings account from your paycheck. There’s a saying, “Pay Yourself First”. That means to always think of your future self needing money, and if you put some away today, it will be there for you tomorrow. A good rule of thumb is to put a portion of your earnings directly into your savings. Sacrifices made today will allow you to hit your goals tomorrow. Make interest work for you and get paid to save your money. If you start simply with a savings account and get in the habit of contributing towards it, you can set yourself up for being able to buy expensive things like a car, your college education, a house, and eventually retirement.


If you start now, you will be in good shape for all these future events, and that rocks! Have you started saving for your future?