• Savings are the part of a person’s income that they do not spend. • Interest is a money reward given by a financial institution for saving money with them. • The amount of money in an account at a given time is called the balance.
• Deposit accounts allow customers to save their money and rewards them with interest added to those savings.
• Simple interest is calculated as a percentage of the original amount put into the savings account.
• Compound interest is calculated as a percentage of the total amount in the account at the end of each year.
• The compound interest rate for savers is called the Annual Equivalent Rate (AER) or the Compound Annual Return (CAR).
• Fixed interest rates remain the same for a set period of time. • Variable interest rates can fall or rise.
• Deposit Interest Retention Tax (DIRT) is a government tax on interest earned from a financial institution. It is subtracted from the interest earned on savings.
• Investing refers to a long-term financial commitment. For example, saving money in a fixed-term high-interest account.
• In Ireland, commercial banks, credit unions and An Post offer a number of options to those wishing to save or invest their money.
• It is important that people shop around for a savings option that suits their needs. • Summary of calculations:
Simple interest = original amount paid in × interest rate ÷ 100 Compound interest = balance at start of year × interest rate ÷ 100
Taking stock A
Go to page 59 of your Activities and Accounts Book to check what you have learned in chapter 7.
