Try this --- Interest

Susie deposited $10 into her savings account every month for a year.

1. How much money has Susie deposited for the year?

2. Susie's account gives her 5% interest a year. Add that to her account. Hint: This is calculated as: ______________ 0.05 x (answer to question 1)

3. How much is in Susie's account, including the deposits and interest?

Investing - Growth Rate

The growth rate or how fast your money grows from year to year is really important. In our compounding example, we used a growth rate of 10%. That's how fast your money grew over the time that you had it invested.

Your money will earn more or less depending on where and how you've invested it. A typical bank account will earn about 5% each year. Shop around to find the best rate. Read the Smart Banking post to get some ideas on how. There are other ways for you to invest your money and get a different growth rate.

A certificate of deposit (CD) is an investment option available at a bank or a credit union. It's kind of like a saving account but different. Here's how it works. You deposit a sum with bank, wait a specified period of time, and then withdraw the sum plus interest. It' s kind of like you are loaning the bank your money to use for a specified time period and they are paying you for the right to use your money. The time period is anywhere from three months to six years.

Another way for you to invest your money is by purchasing stock. What is stock? Basically it means that you own a piece of the company or in other words you have a claim on the company's assets and profits. Ownership is determined by the number of shares that a person owns divided by the total number of shares outstanding.

So, if you own 50 of the 1000 share of stock that a company has outstanding then you own 5% of the company. Only a specific type of company, a corporation, can issue stock. While stock often provide a higher growth rate, there is more risk involved with investing your money in them.

In the next post, we'll talk about risk.

Investing - Compounding

You have some money that you've earned and stashed in your saving account. Now it's time to watch it grow. Yes, it can grow a lot.

If you leave your money to grow for a long time, $100 can turn into a million dollars. The longer you leave your money, the more it grows. It's called compounding!

It depends on three things:

• how much you invest


• how long you invest it


• the rate of growth

When something grows over time, the amount by which it grows also grows.

For example, if you start with $100 and a 10% growth rate, you will earn $10 the first year that you invest it. If you leave that $110 alone and don't spend it, then the next year you will have $121. 10% of $110 is $11. You have the originial $100 plus the $10 you earned the first year and an $11 dollars that you earned the second year.

Your inital investment of $100 is growing and the amount by which it's growing is also growing. That's compounding.