3.8 Interest

In financial circles interest is more commonly known as the charge made for borrowing money in the form of a loan. If you save, the bank pays you interest for the use of your money. Savings then earn interest, or extra income. The banks pays interest to encourage you to save with them.

The amount of interest paid by a bank on deposits depends on four criteria:

1. Term: how long money will be deposited with the bank.

2. Economic Climate: If a country is experiencing high inflation, there may be a period of time when interest rates are usually high.

3. Amount of savings: some banks will not pay interest on account balances under $1,000, but will increase their payments if depositors can invest over $250,000.

4. Risk: the higher the risk the higher the interest rate. Money deposited with the Government is almost risk free and so its interest rates are usually not as high as banks'.

5. Availability of Funds: If you can lock your funds away, the higher the interest rate.