What is interest? Let’s break it down!

By Our Reporter

Let’s talk about something cool called interest – and no, not the kind where you say, “Ooooh, I’m interested in football!”

In the world of money, interest is a little extra money that grows on your savings. Think of it like a “thank you” gift your bank gives you for letting them keep your money safe.

Let’s say you’re saving…

Imagine you have Sh10,000, and you decide to save it in a special piggy bank (or a bank account). Your bank says, “We’ll give you 10 percent interest each year.” That means after one year, they’ll add Sh1,000 to your money, just for saving it with them!

Now you have Sh11,000. If you leave it there again, you’ll earn even more next year. That’s called compound interest – your money is working for you like a little superhero!

But what if you borrow?

Now, let’s flip the story. Imagine you borrow Sh10,000 from someone – maybe a bank or a friend. If they say, “You’ll pay 10 percent interest,” it means when you pay them back, you give back Sh11,000. That extra Sh1,000 is their “thank you” for lending you money.

So, when you save, you earn interest.

And when you borrow, you pay interest.

Here’s a fun way to remember:

Saving is like planting a money seed – it grows with interest.

Borrowing is like renting money – and rent comes with a fee!

So be smart with interest, and let your money grow like a champ!