1. Lesson 6B: Simple and Compound Interest— Why It Is Great To Save
Unit 6: Saving
Lesson 6B: Simple and Compound Interest—
Why It Is Great To Save
©2017, Minnesota Council on Economic Education. Developed in partnership with the Federal Reserve Bank of St. Louis.

2. How can savers benefit from compound interest?
Compelling Question
How can savers benefit from compound interest?
Lesson 6B

3. Visual 6B.1: Simple Interest
Slide 1 of 2
Ending Value (Balance) with Simple Interest
V = P(1 + r)
V = Value (balance) after 1 year
P = Principal (initial amount saved)
r = Annual interest rate
Lesson 6B

4. Visual 6B.1: Simple Interest
Slide 2 of 2
V = P(1 + r)
Principal
Annual interest rate
# of Years
Interest earned
Value
$50 5% 1
$200 7%
$60
10%
$40 4%
Lesson 6B

5. Visual 6B.2: Compound Interest
Slide 1 of 3
Compound interest starting principal: $100
After 1 Year: $100 + $100 (0.08) = $100 ( ) = $108.00
= $ = $100 ( )
After 2 Years: $108 + $108 (0.08) = $108 ( ) = $116.64
= [$100 ( )]( )
= $100 ( )2
Lesson 6B

6. Visual 6B.2: Compound Interest
Slide 2 of 3
Compound interest starting principal: $100
After 3 Years: $ $ (0.08) = $ ( ) = $125.97
= [$100 ( )2] ( )
= $100 ( )3
After N years*: = $100 ( )N
*N = Number of years
Lesson 6B

7. Visual 6B.2: Compound Interest
Slide 3 of 3
V = P(1 + r)N
V = Value (balance) after N years
P = Principal
r = Annual interest rate
N = Number of years
Lesson 6B

8. Years to double = 72/Interest rate
Visual 6B.3: The Rule of 72
Slide 1 of 3
Years to double = 72/Interest rate
4%………72/4 = 18 years
6%………72/6 = 12 years
9%………72/9 = 8 years
12%………72/12 = 6 years
Lesson 6B

9. $1 saved at 12% interest rate, after…
Visual 6B.3: The Rule of 72
Slide 2 of 3
$1 saved at 12% interest rate, after…
6 years = $2
30 years = $32
12 years = $4
36 years = $64
18 years = $8
42 years = $128
24 years = $16
48 years = $256
Lesson 6B

10. 48 years (age 65) = $1,024,000 = Millionaire
Visual 6B.3: The Rule of 72
Slide 3 of 3
$4,000 saved at age 17 at a
12% annual interest rate, after…
48 years (age 65) = $1,024,000 = Millionaire
(It doubles 8 times!)
Lesson 6B

11. Visual 6B.4: Jack and Jill
Jack saves $5,000 when he is 38 years old and puts it in a savings account with an 8% annual interest rate.
Approximately how much money will he have in the account when he is 65 years old?
Jill saves $5,000 when she is 20 years old and puts it in a savings account with an 8% annual interest rate.
Approximately how much money will she have in the account when she is 65 years old?
Lesson 6B