How to talk to kids about interest

Why it matters

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

What is interest?

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.

How it works: Younger kids

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: Older kids

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

See how it grows...

*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%.*

...and grows

*Numbers are for illustration purposes only. Year 10 $10.46 Year 5 $5.10 Prior years’ payments Interest payment In 10 years, $100 grows to about $110.* You and your child can create more scenarios with this compound interest calculator.

Play the long game

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:

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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. Explore visual story, 1 minute Explore visual story, 1 minute Visit Better Money Habits How to talk to kids about their first savings account How to talk to kids about their first debit card