Do you want to make some money?
I would be surprised if you said no.
What happens when you invest money in a bank or building society?
You gain interest (this means you earn money while your hard earned cash is in the bank)
This is calculated by assuming the amount of money invested stays the same over the years and that the percentage rate of interest stays the same.
You invest £300 for 4 years at an interest rate of 5% per annum. (This means per year).
Calculate the simple interest earned.
Interest for 1 year is 5% of £300
To find this 300 x 0.05 = £15. This is the same calculation used to find a percentage of an amount of anything.
You now have £15 pound at the end of the year to go an spend, and you haven't had to do anything!!
Assuming you take your £15 at the end of each year how much will you have at the end of 4 years?
£15 x 4 = £60. remember you haven't invested any more money and the interest rate has stayed the same.
You are now going to raid the piggy bank to put your money in the building society.
You invest £400 for 1 1/2 years at an interest rate of 6 1/2%. Find the simple interest earned.
Interest for 1 year = 400 x 0.065 = £26
Interest for 6 months = £26 ÷ 2 = £13
Interest for 1 1/2 years is £26 + £13 = £39
Sometimes people take a fall as they don't understand simple interest. If you are going to borrow money, you have to PAY interest.
The interest is calculated in the same way, but you will be owing money to the bank!! I suppose that is fair...