Interest (An Introduction)

Transcript

Interest (An Introduction)Imagine you have an extra bicycle, and your friend wants to borrow it for the summer. You agree, but ask them to buy you an ice cream every week as a "thank you" for letting them use your bike. Interest is exactly like that ice cream, but for money. It is the "rent" you pay for borrowing money, or the "rent" you earn for letting someone else (like a bank) use your money. When you save: You put money in the bank. The bank uses your money to give loans to other people. To say thank you, the bank pays you interest. Your money grows! When you borrow: You take a loan from the bank. Because you are using their money, you have to pay them interest on top of what you borrowed. When do we have to pay interest? Interest is not always charged yearly. It can be charged Semi-annually (every 6 months), Monthly, even Daily! There are two types of interest – Simple and Compound Interest Let’s look at them one-by-one