Investing and borrowing

An investment places money into a product in the hope of receiving income or growth. A bank savings account, a credit union term deposit and company shares have different conditions. Compare financial institutions using the same starting amount, time interval and access requirements. Record the advertised rate, whether it can change, the interest calculation method, account fees, withdrawal restrictions and any introductory conditions. A higher advertised rate does not necessarily produce a higher usable balance.

A term deposit may offer a fixed rate but restrict early access; a savings account may allow withdrawals but require regular deposits to earn a bonus rate.

Simple interest is calculated only on the original principal. Let P be principal, r the annual rate written as a decimal and t the duration in years. Interest is I = Prt and total return, meaning the final accumulated amount here, is A = P + I. Distinguish that amount from the gain I. A monthly duration must be divided by twelve when the rate is annual. Rearranging gives P = I/(rt), r = I/(Pt) and t = I/(Pr).

Check that the result has the requested unit and convert decimal rates back to percentages.

Reverse calculations answer different questions from forward calculations. If $270 interest is earned at 4.5% over 1.5 years, the required principal is 270/(0.045 × 1.5) = $4000. If the principal and time are known instead, the rate is 270/(4000 × 1.5) = 0.045, or 4.5%. If principal and rate are known, the duration is 270/(4000 × 0.045) = 1.5 years. These checks make the relationships meaningful rather than four unrelated formulas.

State whether fees have already been subtracted before treating a reported gain as interest.