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How to talk to kids about interest

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

Why it matters

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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?

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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

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

How it works: Older kids

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*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...

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*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.

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
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Encouraging patience for long-term gain

3

Routinely reviewing interest earnings

2

Showing them how to shop for the best interest rates

1

Help your child develop good lifelong habits by:

Play the long game

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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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