1. Business Math
3.6 Savings Account

2. Goals Calculate simple interest on savings deposit
Calculate compound interest on savings deposit
Calculate interest using a compound interest table

3. Start up
Banks provide protection for your money when you open a savings account. They also pay you interest. Why do they pay you interest?
Math builder page 111

4. Simple Interest
INTEREST IS THE MONEY PAID TO AN INDIVIDUAL OR INSTITUTION FOR THE PRIVILEDGE OF USING THEIR MONEY
There are several types so savings accounts
Passbook account – simple interest is figured quarterly or 4 times a year. Sometimes it is paid twice a year semiannually
Find the interest that would be earned for an entire year by multiplying the interest rate by the account balance. The multiple your answer by 1/ the number of times interest is paid in a year
¼ for quarterly interest
½ for semiannual interest
Example 1 then check for understanding page 112

5. Compound interest
Compound interest is when you get interest on any previous interest paid.
The total money in the savings at the end of the last time interest was calculated is called the compound amount
The total interest earned is the difference between the original principal and the compound amount
Both assume not additional deposits or withdrawals
Example 2 and check for understanding page 113

6. Compound interest table
Page 113
Table shows the value of $1 after it is compounded for various interest rates and periods
Top part of the table calculates annual interest
The bottom part calculates daily interest
Example 3
Check for understanding 114
Example 4 the check for understanding page 115

7. Wrap Up
Banks pay interest to you as an incentive to deposit your money. In turn, the banks lend your money to someone else at a higher interest rate than you are paid. The difference between the amount paid to you and the amount collected from the borrower is profit that the bank keeps