Interest Explained

Interest Rates - Interest is usually talked about in percentages, e.g. we borrow £1000 at an interest rate of 10% means that we will pay back the £1000 plus 10% of the £1000 =  £1100. However, the interest we pay or get paid can be difficult to work out as it's calculated using compound interest, as explained below.

Compound Interest With a savings account the bank will pay you interest on the amount in your account, which includes your deposits plus any interest that has already been paid. If you don't make any withdrawals, over time the amount of money in your savings account will grow. Unfortunately, you pay compound interest on money you owe as well, so the interest is added to the amount you have to pay back, which includes any interest already added. So your debt can keep growing until you pay the total sum back.

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