Student Handout — Interest (Week 13)
This handout summarizes what we learned in Week 13. Share it with your family!
What Is Interest?
Interest is extra money that gets added over time. It works in two directions:
Interest When You SAVE (Good for You!)
When you put money in a bank, the bank pays you extra money as a thank-you for letting them hold it.
You deposit $100. The bank pays 5% interest per year. After 1 year: $100 + $5 = $105 After 2 years: $105 + $5.25 = $110.25
The longer you save, the more interest you earn — and your interest earns interest too!
Interest When You BORROW (Costs You Money)
When you borrow money, you pay extra on top of what you borrowed.
You borrow $100. The interest rate is 10% per year. After 1 year, you owe: $100 + $10 = $110 After 2 years (if unpaid): $110 + $11 = $121
The longer you take to pay back a loan, the more it costs you.
How to Calculate Simple Interest
Interest = Amount × Rate
| Step | What to Do | Example |
|---|---|---|
| 1 | Start with your amount | $100 |
| 2 | Find the interest rate | 5% |
| 3 | Convert the rate to a decimal | 5% = 0.05 |
| 4 | Multiply: amount × rate | $100 × 0.05 = $5 |
| 5 | Add interest to the amount | $100 + $5 = $105 |
Interest Comparison
See how different rates change your money over time:
| Starting Amount | Rate | After 1 Year | After 3 Years | After 5 Years |
|---|---|---|---|---|
| $100 | 2% | $102 | $106.12 | $110.41 |
| $100 | 5% | $105 | $115.76 | $127.63 |
| $100 | 10% | $110 | $133.10 | $161.05 |
What do you notice? A higher rate makes a bigger difference — especially over more time.
Saving vs. Borrowing — The Big Idea
| Saving | Borrowing | |
|---|---|---|
| Interest helps or hurts? | Helps — you earn extra money | Hurts — you owe extra money |
| Time is your… | Friend — more time = more earnings | Enemy — more time = more cost |
| The smart move | Start saving as early as you can | Pay back loans as fast as you can |
Key Vocabulary
| Word | Meaning |
|---|---|
| Interest (saving) | Extra money the bank pays you for keeping your money there |
| Interest (borrowing) | Extra money you owe on top of what you borrowed |
| Interest rate | The percentage used to calculate how much interest is added |
| Deposit | Putting money into a bank account |
| Loan | Money you borrow that you must pay back, usually with interest |
Talk About It at Home
- Does our family earn interest on any savings? Where?
- Has anyone in our family borrowed money (like a car loan or a mortgage)? How does interest affect the payments?
- If you saved $5 per week for a year, how much would you have? What if you earned 5% interest on top of that?