How do savings accounts work?

I learned at money.howstuffworks.com, that when you open a savings account at a bank, the bank pays you compounded interest on the money you deposit into the account. With your money, they loan it to other people, charging a higher interest rate than what they pay you. This is how banks make their money and stay in business.

APR VS APY

I learned from investopedia.com that APR and APY are different things. APR is the annual rate of interest without taking into account the compounding of interest that occurred within the year. On the contrary, APY does take into account the effects of intra-year compounding.

Formulas:

An example may be, a credit card company might charge 1% interest each month. The APR would equal 12% annually. If you have a balance for only a month, the APR will be 12%. However, if the balance is stretched all the way to a year, the interest monthly is compounded, which means you'll be charged 12.68% annually.

Understanding the difference is prime to understanding how interest is calculated in credit cards and investments.

Happy Thanksgiving!

I hope everyone is enjoying this break!
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ever wonder where the equation pt=p0(1+r)^t came from?

 try solving this problem: I have $5500in my account and it increases by 2% each year, whats the balance after 3years?  4?5?

1st year: 5500+(2%x5500) = $5610 *so i have $5610after1 year
2nd year: 5500+(2%x5500)+[2%(5500+2%x5500)]=$5722.20 so i have 5722.2for the 2nd year.
3rd year: etc.
if you simplify the 2nd year's equation, you'd find 5500+(2%x5500)+[2%(5500+2%x5500)] is equal to 5500(1+2%)^2
2nd year-to the 2nd power
3rd year-to the 3rd power
4 year- to the 4th power
t year- to the t power.
➸and thus the equation   p(t)=p0(1+r)^t
:)

Investment project

In this investment project I researched the annual rate of return for banks and the annual rate of return(or dividend rate) for companies. I learned that Wells Fargo had an annual rate of 0.01% for their Savings accounts. This percentage was found on wellsfargo.com/savings-cds/rates.  I also learned that BP, a refinery, had a dividend rate of 7.17% as of 11/10/16. My dad, lactose, showed me how to look for the dividend rate on finance.yahoo.com. I learned that the percentage of a savings is a lot less than the percentage for an investment. A savings account won't earn as much money as an investment for the same year. Learning this information has given me a better understanding about how to handle my money by choosing the right bank to put my money in and what company I should invest in to earn more money each year. My conclusion is that an investment account will exceed the amount a savings account balance will provide.

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