How to talk to kids about interest

Understanding how money grows in a savings account could motivate your child to save.

Why it matters

Explain that interest is money a bank pays you for keeping savings there. The bank sets interest rates—what it pays per dollar saved. Higher rates mean bigger payments.

What is interest?

Start with simple interest—money paid only on your child’s contributions. Give them a dime for every $1 they save. Keep the money in a clear jar so they can see it add up.

How it works: Younger kids

Move on to compound interest. Explain that compound interest is what happens when your interest earns interest.

How it works: Older kids

*Numbers are for illustration purposes only.

Year 3

$3.03

Year 2

$2.01

Year 1

$1.00

Prior years’ payments

Interest payment

Use savings account statements to show interest payments rising even when no new money is deposited. Here’s how interest payments add up on $100 earning 1%.*

See how it grows...

*Numbers are for illustration purposes only.

Year 10

$10.46

Year 5

$5.10

Prior years’ payments

Interest payment

...and grows

In 10 years, $100 grows to about $110.* You and your child can create more scenarios with this compound interest calculator.

Encouraging patience for long-term gain

Routinely reviewing interest earnings

Showing them how to shop for the best interest rates

Help your child develop good lifelong habits by:

Play the long game

This material is for informational use only and is not intended for financial or investment advice. Bank of America Corporation and/or its affiliates assume no liability for one’s reliance on the material provided. This material is not updated regularly and may not be current. Consult a financial professional when making financial decisions. ©2024 Bank of America Corporation.

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