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 Interesting Interest!

## Interesting Interest

If you have a saving account you either have simple interest or compound interest. If you ask me my thought on simple and compound interest I would tell you that simple interest makes no sense at all! Here’s why:

When you earn simple interest all you get is a percentage of the amount you put in. An example is if you putt in 100 dollars and you earn 4% interest you only get 104 dollars as your total. It probably doesn’t make any sense so here’s the math get a calculator! You put in 100 dollars you get 4% or .04 percent interest multiply .04 or 4% with 100 then add your answer to the original amount. What do you get? It should look like, \$100 multiplied with .04 = \$4 + \$100 = 104 dollars is the total. Now your money is not guaranteed to always get the same amount of interest. You might get 1% to even 20% so it depends how much interest you earn. That’s the amount you get at the end of one year.

With compound interest you can earn a lot more! With simple interest you get interest once and then your done for the year. With compound interest a years divided into periods of three months. So you get interest 4 times a year. You keep on getting more and more interest that adds to the deposit and the interest that is already earned. So if I put in 1000 dollars and earn 5% interest per year I’ll get 1276.28 dollars. I would earn 276.28 dollars without putting any money in. Here’s the math \$1000 multiplied with .05 = \$50 + 1000 = 1050 dollars, for the next year it would be \$1050 multiplied with .05 = \$52.50 +1050 = 1102.50 dollars and so on for the 3rd and 4th years you have to remember to add the interest, not to the original deposited but the last year or periods total. But again you can’t be sure to get 5% interest for even 1 period. That is why I put years instead of periods because sometimes all the periods add up to 5% interest all year. Remember if you withdraw your money it doesn’t collect interest!

Where does interest come from? Interest comes from investments that are from money people deposit. When you deposit money you are sort of sharing but you are guaranteed to keep all your money. When money is deposited you get a slip of paper telling how much was deposited. Then all the money goes to a secured place where it’s kept until withdrawn. Here’s how you get interest lets say a person wants to buy a car for 50,000 dollars and only has 10,00 dollars he needs 40,000 dollars so the bank gives him a loan. Once he pays off the loan he has to pay interest. If he pays 7% interest, all you get is 3% and the bank gets 4%, right? No, the bank gets all the interest paid and buys stocks, property, and any sort of investment then divides the prophet and gives a part to all the people with accounts. Basically, there is a saver side to interest and a borrower side. Saver side is the best to be on because you earn interest instead of on the borrowers side you owe the interest.

It’s kind of confusing but after a while it starts making sense. Like it’s better to have compound interest than simple interest. Also how you get interest and what happens to money after depositing it. I think interest is interesting what about you?

Einstein School's ThinkQuest Team
Created: March 7, 2001  Updated: 03/14/01
Schaumburg School District 54