F1.5 Explain how interest rates can impact savings, investments, and the cost of borrowing to pay for goods and services over time.
Activity 1: Savings Options
Tell students that a deposit of $500 is made into an investment account. Using an online interest calculator, ask them to determine how much money will accumulate after one year if the account offers 4% annual interest. Then ask them to do the same exercise, but for an account that offers 5% annual interest and has a fee of $10 per year.
Then ask the following questions:
- Which account offers the best savings option for the year?
- What is the difference in savings between each account?
- Now, using the online interest calculator, check the amount of money in each account after 2, 5, 10 and 25 years. What do you notice?
- What happens to the interest and difference between the two scenarios? Explain your reasoning with mathematical arguments.
Activity 2: Where to Borrow?
Tell students that a teacher is about to borrow $1500 to buy a car. She has the option of borrowing money through a credit card, a line of credit, or a car loan and hopes to pay the loan back at the end of 24 months. Ask students to do an Internet search to determine the annual interest rates for each loan, and discuss how these interest rates will impact the total amount owing at the end of 24 months.