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.
Interest Explained
| 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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