That's Interest-ing!

When you deposit money into a savings account, you’re lending that money to the bank. Banks use your money to fund other projects, and they usually pay you interest in return!

Your balance grows because the interest is compounded regularly—usually monthly or annually. That means both your principal and any interest you accrue earn interest that cycle. Cha-ching!

Saving Money

Watch a video about how and why to save money.

COMPOUND INTEREST FORMULA

This is the formula you can use to figure out how much your balance increases over time.

A = Total amount you have in your savings account

P = Principal, or the amount of money you deposited

r = Interest rate (decimal)

n = Number of times per year the interest is compounded

t = Number of years that pass before you withdraw the funds

You got $300 for your 16th birthday! You deposit it into a savings account with a 5% interest rate that’s compounded annually, or once per year. Round answers to the nearest cent when necessary. Record your work and answers on our answer sheet.