I is for interest

Do you know what interest is and why you should be interested in it? No neither did I until very recently!

Well it turns out that interest is actually very... well—interesting!

What even is interest?

Simply put: interest is the percentage the bank pays you per year, sort of as a thank you for saving your money in their bank. But it goes both ways. Interest is also the cost (fee) of borrowing credit from the bank, only in this case you pay it to them.

So, when you put money in a savings account, the bank pays you more money which is called interest, and the more you save the more the bank pays you. The problem with interest is that if you take money from the bank which isn't yours (called credit) that the bank allows you to take out as a loan, you have to pay them the interest. And the longer it takes you to pay it back the more you owe them as the interest then works against you.

The reason the bank pays you interest is because it makes you want to keep your account open so that they can use this money for their own business deals. So while you are sleeping, gaming or playing with your freinds they are making hundreds of deals to turn your money into more money. The interest is their way of rewarding you for this.

One of the smartest things to do at a young age it to start saving early and often so that the interest in your account builds up—earning a passive income. Interest rates can go up and down depending on the Bank of England (Loads of people in suits who decide how expensive everything is).

What does this all mean to us?

So what does this all mean to you? First things first, if you have have a bank account make sure it has the best interest rate that meets your need. You can check this by looking on comparison sites (or asking your parents). The higher the rate the better the return.

On doing my research for this blog, I discovered that with the bank I have at the moment, where I used to get 3% when I opened the account, I now only get me 1.64%.

Sneaky, I handn't even noticed that!

Clearly my money could be working hard for me, so is it time to switch?

Crudely speaking if i was to move all my money to another bank which I found had 4% (a Google search is a great place to start, or maybe Martin Lewis Money Saving Expert) I would get £14 more passive income a year. And if you shop around at the moment, there are a range of good rates around 4-5%.

Did you also know...

There is also something called compound interest where, for example, say you have £100 in your account then the bank could give you a extra £2 making you have £102 then the next month the bank might give you £2.25 since the interest is now on the bigger amount, and on and on each month, so your money will keep growing. This is called compound interest. And of course, the higher the basic saving interest rate the higher the compund benefit.

I know its all a bit confusing but no matter how much or little you have in your account it is still worth shopping around for the best rate you can get.

I'm off for now, got to get my paprerwork ready for a bank account switch at the weekend!

Always aim high,

BIG Dreamer