Keeping Track of Your Savings

If possible, most people seem to try to save a little bit of money each month. This money could come in handy if an unexpected emergency arises or if you decide that you want to take a trip or buy some new furniture. Most people decide to open a savings account, rather than keeping all of their money in a checking account, because most checking accounts do not allow you to earn interest on your deposits. If you open a savings account, the bank will pay you a certain percentage of your account balance for keeping your money in that bank. This percentage is called an interest rate and most banks seem to pay an interest rate of between 5% and 10%. Another thing that is important to know about interest is how often it will be compounded. Interest rates can be compounded annually, semi-annually, quarterly, monthly, weekly or even daily. How often your interest is compunded will have an effect on the amount of money you earn as interest from the bank. The activities on this page are going to give you some practice in keeping track of the amount of money in your savings account.

What we are going to do is pretend that you are about to open a savings account and try to figure out how much money will be in your savings account and the end of a year if you make deposits each month and if you earn a certain amount of interest. When you are doing these activities you will need to remember that the formula for calculating interest is: Interest = Principle x Rate x Time (where the principle is the initial amount of money, the rate is the interest rate and the time is the period of time over which it is being compounded).

 (In the activities below you can find out if your answer is right by clicking on the question.)

 First we are going to decide where you should open your account. You have narrowed your choices down to two banks and are trying to decide which is a better deal. Should you open an account at a bank that has a 9% interest rate compounded semi-annually or at a bank that offers a 9.3% interest rate compounded annually? (Hint: Pretend that you are going to make one deposit of $200.00 initially and not add any more to the account during the first year.)

 Next we are going to find out how much money you will have in your bank account if you deposit $500.00 initially and then $200.00 each month for a year. You have decided to open an account at the bank with an interest rate of 9.3% compounded annually. How much money will be in your savings account at the end of a year at this bank?