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.

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.