© Nuffield Foundation 2011

Nuffield Free-Standing Mathematics Activity

Simple and compound interest

© Nuffield Foundation 2011

Where would be the best place to put the money you save?

What do you need to consider when choosing a savings account?

What are simple interest and compound interest?

In this activity you will use a spreadsheet to compare how your savings would grow in accounts that pay simple interest with those that pay compound interest.

© Nuffield Foundation 2011

When choosing where to invest your savings, think about:

• the interest rate you will get

• how much money you can afford to save

• how long you want to leave your money in the account

• whether you can withdraw cash instantly, or have to give notice

Compare interest rates using the Annual Equivalent Rate (AER).

© Nuffield Foundation 2011

Source: http://www.moneysavingexpert.com/banking/interest-rates#compound

© Nuffield Foundation 2011

At the end of the activity

What are the differences in the way simple interest and compound interest are calculated?

What effect does this have on the amount of interest earned?

What difference does it make to the interest earned when you vary:

•the amount invested

•the rate of interest

•the number of years?