Working With Checking and Savings Accounts - The Homer Fund

Earning Interest
A financial institution may pay you for keeping your money in one of its accounts. This
payment is called interest. The interest you receive is calculated as a percentage of
the total funds you have in your account. For example:
If you deposit $50 at the beginning of each month and do not withdraw any money:
Interest Rate 1 Year 3 Years 5 Years 10 Years 20 Years
($50 x 12 Months)
0% $600 $1,800 $3,000 $6,000 $12,000
3% $610 $1,886 $3,240 $7,005 $16,456
5% $617 $1,946 $3,414 $7,796 $20,637
7% $623 $2,008 $3,601 $8,705 $26,198
9% $630 $2,073 $3,799 $9,748 $33,645
The top row (0 percent interest rate) illustrates how much money you will save by saving
$50 at home each month. The rest of the chart illustrates the amount of money you can
save by putting aside $50 each month in an account that pays you interest. For example,
if you put aside $50 each month at home, after three years you will save $1,800. If you
deposit the same amount of money in an account that earns 5 percent interest, you will
save $1,946 in three years. The financial institution will pay you $146 in interest for
keeping your money in an account. As you can see, an interest-earning account helps
your money to grow.
The following graph shows that you can save significantly more money over the same
period of time by keeping your money in an account that pays you interest. Assuming
that you deposit $50 each month into an account, observe how much more money
you will earn over time in an account that pays you 5 percent interest or 9 percent
interest.
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