December 2017 Financial literacy question

Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same or less than today?

We will disclose the answer to the question at the end of each month so stay tuned! In the meanwhile, scroll down and submit your answer!!

Question & answer to the November 2017 financial literacy question of the month!

Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, how much would you have?

You’ll have more than $110.41 at the end of five years because your interest will compound over time.  Here’s how – Savings account with $100 and a 2 percent annual interest rate would earn $2 in interest for an ending balance of $102 by the end of the first year. Applying the same 2 percent interest rate, the $102 would earn $2.04 in the second year for an ending balance of $104.04 at the end of that year. Continuing in this same pattern, the savings account would grow to $110.41 by the end of the fifth year. You will earn interest on the money you save and on the interest your savings earned in prior years.

This was a simple example using $100 but imagine if you are able to save $10,000, $100,000 or $500,000? 2% does not sounds like a lot, but it does add up.

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Comments ( 2 )

    • Great guess, Nyesha!! I will provide the answer and calculation this Thursday (last day of the month) so stay tuned!

      Thank you for being my first comment! I appreciate it 🙂 Yinette

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