JUNIOR CYCLE BUSINESS STUDIES The savings accounts offered by banks are known as deposit accounts.
Deposit accounts work by allowing the customer to save their money and by rewarding them with the interest added to these savings.
CALCULATING INTEREST
Interest is calculated as a percentage of the money in a savings account. The amount of money in an account at a given time is called the balance. There are two methods of calculating interest: simple interest and compound interest.
Simple Interest
Simple interest is calculated as a percentage of the original amount put into the savings account.
Simple interest = original amount paid in × interest rate ÷ 100 Example
Laila Shah puts €500 into a savings account in her local bank and leaves it there for three years. The simple interest is calculated at 5% each year. Year
1 2 3
Balance at start of year Interest Balance at end of year €500 €525 €550
Total interest
In the above example, you can see that the interest is the same each year, as it is always the percentage of the original sum put into savings.
Calculating simple interest A
Go to page 58 of your Activities and Accounts Book to practise calculating simple interest.
