Simple and compound interest
Follow savings year by year: with simple interest the same amount is added every year, with compound interest the money is multiplied by the same number. Then see how something loses value each year.
- UK: Year 8
- Germany: grade 6
- Afghanistan: grade 8
- Ukraine: grade 9
- Russia: grade 9
Guide
This studio follows Year 8 (KS3 "simple interest in financial mathematics") and leads to GCSE growth and decay. The first number of each sequence is the money now; each next number is one year later.
simple interest: each year's interest is worked out on the starting amount only, so the same amount is added every year: 10% of £1000 is £100 more each year. That is an arithmetic sequence.
compound interest: each year's interest is added to the money, and next year it earns interest too. 10% more means × 1.1; 5% more means × 1.05. That is a geometric sequence. 10% less means × 0.9.
Common mistakes: working out compound interest as simple; "5% for 2 years is 10%"; multiplying by 0.05 instead of 1.05; taking off a fixed amount for a percentage decrease.